lot of hope. a lot of things that seemed could go right. working down in helmand at the time. since then i have had to personally revise a lot of my views on what we, the international community, can do in afghanistan. i would just like to start by saying, i find it harder and harder to see how the current strategy could be made to work. we have a military surge. but the insurgency has been spreading from the south and east to provinces. they used not to be the ground for insurgency. this continued centurion pakistan, a tenfold increase of taliban fighters since 2005. what my staff estimated was about to a 3,000 fighters.

the recent estimates have been up to 35,000. some analysts was suggesting a much higher number than 35,000. also a vast amount of money has been spent, and the pressure to spend that money quickly has resulted in a war that in itself, i think, is stealing some of the rivalry and conflict on the ground. the massive conflict is becoming much more messy, not just about taliban government, but all kinds of localized conflict that are unclear in the bigger picture. the whole industry that has grown up around our foreign aid, extortion, corruption that plagues the construction, private security contracts, and many reports that have been written about these things. is networks of powerful local

strongmen. karzai in kandahar who are dominating the economy, the new war economy. and this massive spending comes at the same time as international has named afghanistan the most corrupt country in the world after somalia. so what we are seeing at the most physical level is the merging of politics and economy and things like the troubled bank scandal which has become the most visible symbol of this kind of corruption. out of this management, the influence that has been given to politically connected individuals there is a risk that 579 million at least is in jeopardy. the entire financial sector including now the withdrawal, a potential withdrawal of the imf deal. politically we are hobbled by a

president who is being increasingly the legitimate by the pop -- population to register for into the 2009-2010 election. this last parliamentary election is not yet over. he is also prone to lashing out at the international community for what we are trying to do. fundamental disagreements on aspects of the strategy and a lack of trust that goes both ways. there is a transition time line that was set in lisbon, and that is the transition for 2014, which is obviously by any standard too short a time for a modern democratic state to emerge. and even if there was a very enlightened and reformed line of afghan, it would not be possible in that time line to create a strong central state which provides security and justice for all the people. so what is the answer?

i would say in 2005i would have argued it is strategic patience. we just have to stay longer, stay the course. think about our decades-long commitment and afghanistan which may still be correct. i think the question now is to do what? said in a i would not advocate during the same as what we are doing now for the next 30 or 40 years. if we are doing the wrong thing, then we just had in that same wrong direction for a very long time. but i would argue that it is a political strategy. this suggestion that there needs to be talks to end this war had started to become more respectable in recent months. the press reports of preliminary talks with the taliban, the high peace council which has been

appointed by karzai. these are not a political strategy, i'd like to emphasize, but they do show that debate may be shifting. last year when i covered around washington and around this time of year pushing the idea of the peace process, most people seem very skeptical. they were feeling that there was a winning strategy that obama had launched. smart people were working on it. substantial resources finally. the military have the troops needed and one so-called expert who had been advising and creating and crafting this letter counterinsurgency effort told me that after those everything would be different. there was a humorous tic sense that the military victory was still possible. and, yes, i think the town has fundamentally shifted since then. there is a recognition that some type of political process is needed, although policy has yet to catch up. i think that is clear in a

number of key areas, and i would like to touch a little bit on the current military strategy. now, a key metric that isaf is using to point to success is a number of mid-level commanders to have been killed. a lot of particles coming out about the tempo of night raids, special forces operations, and they clearly have intensified since summer. in the first half of 2010 there were 100 insurgent figures capture or killed. in the second half of the year there were three times that many. so targeting those mid-level commanders is certainly fragmenting the insurgency, as isaf argues, but i've just put a question mark on what else it might be doing. i think there is some evidence that it is also generating a new

generation of commanders who are younger, more radicalized, and more locally autonomous. so there are no longer responsive to the traditional authorities in their area. one example is the network where the generational transfer of power is happening. the sun is much less respectful of local, travel, and traditional authorities. this may make it a lot harder for the taliban to enforce an eventual peace deal. now, i can't go into a lot of data for that, but there is a book coming up by felix and alex in april or may, to analysts who have been tracking the issue of the insurgency developing. they have lots of data to support conclusions. in fact there is fragmentation

and potentially quite a dangerous new local autonomy developing. now, general patraeus predictably disagreed with this view of the military campaign and speaks of impressive progress. he also highlights cases where taliban fighters have been coming over to the government side as part of the reintegration program. there were said to be 900 x combatants who have enrolled so far in the reintegration program. the vast majority come from provinces in the central, western, and god and parts of afghanistan, away from the heavy fighting. this is something that is developing and it is hard to say where it is going, but i would say that the hard core is not yet being tantalized by this offer. in fact, this may not be a productive debate to engage in. the military have asserted that negotiations should be on the

convective from a position of strength. if they now also planned to be making impressive progress at think we should be asking the question of them, does that not mean that it's time to start negotiating? the reality is, of course, that the fighting and talking will go on for a long time and parallel. i think everyone always recalls northern ireland in making this case with the first chance for peace were established in 1972, for peace talks. very careful, low level, an official channels. the good fighter agreement was signed 25 years later in 1997. so that would be my first proposition, that talks need to start now and preparations for talks need to start in center. and there are channels, but from what i can see they don't talk.

so what should a political strategy look like? i think we should be careful about talking about solutions. i'm not sure that there are solutions, as such, that we're going to get to. talks in themselves can have value in building the trust, confidence, creating stability. and i think there are several layers on which those talks need to be happening and several different groups, circles the people, who need to be involved and then to make them create that potential stabilizing effect. a peace agreement that results in a state that afghans are willing to live in and regional neighbors are willing to endorse, i think, is alternately where we need to be heading. so the agenda needs to be somehow tailored to that, understanding the grievances of afghans, trying to understand what the taliban wish list might be, and then, of course, understanding the core

principles that can't be negotiated away, things like what makes an afghan state acceptable to neighbors, sovereignty, that it lives up to international obligations, that it will allow with their power to use it as a base to attack its neighbors. now, so far there has been very little of -- we talk about the different circles, consultations of the afghans themselves, the broader population. a lot of afghans are very nervous about talks, and rightly so. they are being kept in the family. karzai has been reaching out. involved in various initiatives. there is a high peace council, which is many think, and the taliban seem to think is a fixed process. seems to be mainly designed to keep the north of lance warlords on board. the taliban have explicitly renounced this aptitude and talk

about the reintegration process as another way for the government to cash in on the foreigners. there is also opposition from northerners, women's rights groups, human rights activist, and a faction of the army which we need to be very careful of in this context, a lot of generals who probably if there is a deal that creates fractiousness, would walk away with their troops. and so that is why i think it is absolutely crucial to open up the political space to broader consultation. there should be debate within afghan society about what kind of conditions are acceptable. now, some of the popular grievances that are generating support for the day before, two main issues, the presence of foreign troops and secondly the lack of justice and the

corruption of government. some indication, also, that the taliban think, although we don't really know, there are people who have written about it, matt waldman, michael and others, last week in london at an event held there. he is not -- he does not represent the taliban. he is the former taliban ambassador to pakistan. maybe some of these things would give an indication, and i would just like to run through some of the taliban which list. now, the taliban would probably want to be a recognized as a political movement. secondly, there is an interest in the release of prisoners at guantanamo and others. thirdly they're looking for a cease-fire by all sides. fourthly, they're looking for the withdrawal of foreign troops. fifthly, there is an interest and a more islamic state.

and on the other hand what we could imagine asking them would be be more explicit about pronouncing al qaeda, which they do it privately disassociate themselves from the de hottest agenda. secondly a commitment to reforming rather than controlling the afghan state. thirdly, a commitment about sovereignty of afghanistan rather than some kind of merger with pakistan. fourthly, a commitment to different ethnic groups and political parties. and so some of the things that the taliban are about, which is not totally clear. i could imagine a formula for the way ahead. and so the in the state that i could imagine would be the withdrawal of all foreign forces, and that means al qaeda,

any activists operating. getting there would be through some kind of series of confidence-building measures, cease-fires, localized cease-fires, changes in the rules of engagement that are agreed to by the warring parties. that would require some kind of office for the taliban somewhere so that they can actually be a party to talking about what the next stages are. no preconditions for talking. so far we have talked about redlines. redlines aren't particularly helpful if we are talking about talks. the redlines are probably things that in the and become the outcomes of the conversation. so, al qaeda is not a precondition for the taliban, but it should be a precondition of a final peace agreement. similarly the constitutional issues that might be there, it may not be something that we

want to insist on, but there needs to be an agreed constitution at the end of the process. and so, just to come to my final points about who should be at the table, i'd think we need to make sure that everyone who is currently engaged in the conflict is at the table. the afghans can negotiate a peace agreement without the united states. there are issues that they simply can't represent in relation to the taliban or anyone else. there needs to be a preparation of the various parties. no internal clarity that i can see in the u.s., although i'm sure there are a lot of conservation is happening. the afghan government has too much interest in continuation of the conflict, and the knees to be a preparation on their side of what is it, what is their negotiating platform. afghan civil society needs to be a real representation in this process, rather than a token representation.

the taliban, and it is unclear how much discussion there is, is there a position already forming or is it just a few different forces coming out? pakistan, which is -- well, the internal destabilization continues, economic crisis, how much real effort is going into defining a platform is unclear. and then who mediates? i think there is a confusion on going where we talk about the afghan as efficient of the process. the afghan government is a party to the conflict, and i have never seen a conflict where the successful negotiated resolution or one party of the conflict is the one that sets up the peace process. i do think there is going to have to be a third party mediation. and here is where the international community ought to take etched a much stronger and

clearer row. it could be the u. n, it probably could not be unama which is on the ground and has a mandate to support the government. the u.n. might be the right body. there might be some other body. and so starting to set up the process, i think, is crucial. also an understanding that a peaceful settlement is not so much about working through technicality, but creating a narrative that allows all the different parties, u.s., taliban, and others, to save face and come out of this with no one defeated and no one winning, but with something that is lasting and durable as peace for afghanistan. thank you. [applause]

>> thank you very much and good morning. i'm taking this opportunity to thank usip for organizing this discussion on a very important issue. i agree that the situation in afghanistan looks confusing. this last year i made several visits to afghanistan. i spent two or three weeks. every time i came back with a different picture of the country because things are changing. on the one hand you see improvements, progress. on the one hand the situation is deteriorating. so the battles sheet is very

complex. now this next year is a key to the future of afghanistan, whether the progress and achievements are going to reduce the negative impact of setbacks or setbacks will actually reduce the impact of whatever progress you see today in afghanistan. as i was reading the report, "making peace in afghanistan," i was struck by the emphasis of the author on the need for political strategy that goes beyond talking to the taliban, but must define the kind of state that the afghans are willing to live in and neighbors can endorse. i fully agree with that and have written and spoken in support of this idea over the last year. in fact, i agree with most of the arguments presented in the

study and its recommendations. however, i have some reservations about how to proceed toward creating a social, political, and security environment that is conducive to the success of the political strategy that she is supporting. we should also recognize that regional actors can be both obstacles and solutions to the problem, including politics. our structured might briefly. the role of military strategy in shaping that kind of environment , the second proctors of the comprehensive political strategy and finally the role of regional actors. although there is no military solution to the conflict, one can, a political strategy is not

an alternative approach, but they complimenting effort. there is an ongoing debate whether negotiating with taliban should be adopted as a political strategy of round which military strategy is defined. preferred by some european countries. the military effort should be the strategy of choice to produce gains on the battlefield and force the taliban to the negotiating table supported. in the first case, the pace of troop withdrawal will be determined by the progress in talks with the taliban. in the latter case the pace of progress in talks will be determined by the progress on the battlefield. these two strategies are not mutually exclusive.

there is a close link between them as long as the withdrawal is the centerpiece of strategic approach. the taliban and their supporters are not going to have any instance to negotiate if they see that they can gain more by continuing the fighting. meanwhile, without taking advantage of military gains to when conditions for talks the peace will continue to be elusive. historically negotiated insurgencies have all taken an extended amount of time. they were conducted parallel with combat. so in either strategy talks and fighting are likely to go on simultaneously for some time until an environment conducive to a settlement is created.

next, the march 21st, afghanistan tries to begin taking over security responsibilities for important population centers and the shared nato afghan plan. most likely it will start in the northeast. the plan envisions that afghanistan security forces will assume full responsibility for security across the country by 2014. now, there are three major questions. first, what are the chances of success? this is the tenth year of u.s.-led military involvement in afghanistan in a security situation that has continued to deteriorate. second, what is the basis of expectation that the country will stabilize by 2014 to the point that will allow

irresponsible withdrawal of foreign troops from the country? third, what is the vision and what are the ways and means to achieve it? but when we, war in afghanistan, we started or and have continued for ten years. during the past nine years were more than nine years, but resources stabilization effort to check the security environment that peak this year at the highest level since the removal of taliban from power in 2001. actually, taliban were defeated. bush so, what we call a victory in 2001 was not a victory. the ever increasing complexity of the strategic and operational environment is perplexed the afghan government and

contributing nations. the government of any unified vision for the nation and its people. all parties have approached the emerging issues in divergent and coordinated ways with operations on every front being fragmented to events rather than strategic undertakings designed to support long-term goals. aware of the vietnam war famously once said that america had not been fighting the war in vietnam for 12 years, but for one year. the same can be said in afghanistan today. the international forces have fought nine years. if you multiply it by the number of actors and afghanistan then it is 400 in the past nine years, uncoordinated.

now, 2009. look. the first time in the post taliban time that sufficient resources are available and that there is a sound strategy adopted by nato forces to not only still the insurgency or reverse the momentum, but also to build capacity in afghanistan before stabilization operations. counterinsurgency. what i think there ought to be, that strategy started to employment. there were calls for a change of strategy. the surge that took place, 35 or more troops, actually, they were deployed only at the end of summer of last year. it has not been even a year since the strategy actually started implementation

perrysburg changing the strategy into something else. if you look at the transition adopted by london and continued through the process it is based on two major things. on the one hand try something to reduce the level of threat and on the one hand do something to create the capacity to respond. that should be done at the same time. so building capacity, a conservation but the effort of insurgents, at the same time trying to get support of the regional actors. these data parameters of a military strategy. it is it time to think about a different strategy?

well, maybe. but at the same time the actions of comprehensive political strategy golan with this military strategy. there are, however, confusions inside afghanistan and the region about the parameters of political strategy. the scope of political strategy by an overemphasis on talking to the insurgents as the key to peace. negotiation with the insurgents. the end is a peace settlement that is supported by all parties. a settlement which is sustainable and does not so the seeds of conflict. it should address grievances that fuel corruption, and justice, political exclusion.

such a settlement is not just about a deal with taliban or even the supporters within pakistan. the settlement should clearly define and in date. the afghans are willing to support and the original actors and others who are involved too comfortable with. behind there is a potential with the country's leaders and could be very divisive. during the past years there were talks going on that only a few people knew about. we are talking about the debates. okay. the karzai government and his family was reaching out to some taliban people. your talks at different levels in afghanistan are going on for

the past nine years at different levels. local levels for different purposes. afghan talk with each other. so therefore it is not talked with individuals or local issues. talks for the in the state is not happening in afghanistan, not at the afghan level, not with the political parties, not with even the international community, the reports about un officials talking with taliban or you in officials and other countries. these are not talks. i think if you are looking for talks that will end and peaceful the solution i will come back. the public trust with the kabul government is deepening

suspicions among the afghan forces and require a multilevel negotiation be part of any strategy. there are many people that the karzai government is not looking at. what does legitimacy in afghanistan? it does not come from the ballot box. the election. legitimacy is derived. if the karzai government becomes effective nobody will talk. otherwise an environment like afghanistan, you cannot hold elections. at think in 2003 to people were against elections in 2004. elections, first to have to build the institutions, the rule of law. election because the playground.

the affair. we are talking about the corruption. without the rule of law the free-market economy becomes a playground for mafia. so when i was covering central asia in the 1990's and 2000's after the breakup of the soviet union, when we talk about corruption we have to realize that most of this corruption was caused by the way the international community deals with afghanistan. so in 1980's when seven factions are fighting the soviet occupation and it was supported by countries with no accountability at all, the same way. in 2001 but by the most corrupt people who were the reason

that the taliban came and listed as partners. so if you have to change that environment. corruption after lotus risk activity in a high-risk environment. you need to reverse it. so this is how you have to create that environment. in afghanistan it will eventually be conflict resolution process. the diverse or diffuse fighting for different reasons. i share the concern of some colleagues. okay. the taliban commanders is : to create a new generation. afghanistan society, the old

generation and the young generation. it is all mixed. they fight for different reasons. the taliban commanders, they will come. maybe they are more radical are not. it was to atomized to disintegrate. it was ethically to intertwined to compartmentalize. so it does not have the kind of potential to disintegrate. now, let me talk briefly since i am running out of time about the rule of regional actors. the regional powers can be both obstacle and solution to the country's problem. progress requires stability in

afghanistan as an extension of other nations. what are the main things that can be the policies of neighbors. there are two things. the so-called legitimate security concerns, opportunistic and the strategy. the two other things, the opportunistic and hedging strategies can be addressed if you achieve a certain level of stability unless there is a certain level of stability in afghanistan neighboring countries will continue to try to influence the situation in afghanistan.

the strategies will be the strategy of choice. and then security concerns. these are things that should be. what is the lowest common denominator? we have discussed it. talks within afghanistan and pakistan on a bilateral basis. there are several meetings about this. one is the university. that is a kind of the consolation, reintegration and construction. this brings together the

strategic studies centers of afghanistan, pakistan, iran, china, russia, central asian countries, turkey, the u.s., and others. there have been several meetings in the past one year. then there is the meeting about the process within afghanistan, but all these discussions cannot achieve the in better understanding. it was also complemented by two other things, bilateral and official diplomacy. at the same time a kind of a change of perception that afghanistan eventually will be able to stabilize itself. i will stop here and i will be happy to take questions.

>> thank you very much. [applause] >> good morning. thank you for coming, and i want to thank minna järvanpaä for her hard work and writing the paper, but also recognize all the work that went behind the paper to advance the concept that a discussion with a wide range of stakeholders of many different options is needed to move as and afghanistan toward a peaceful and durable political settlement. thank you, professor at ali jalali, for your insights both written and spoken over the years that have motivated me and to usip for holding this event. the way the three partners i am working with on this project are

trying to take forward this agenda about a political process has focused on a limited area which is the drivers of conflict within afghanistan understanding better the interests involved with in the country and exploring the parameters of potential durable solutions to those issues. it is always important to stress that there are a host of international, regional, and transborder issues that are very important, in some ways may be determinant. but the internal elements increase the vulnerability of afghan state and society to these factors. these need to be addressed if any settlement is calling to be durable and therefore provide a longer-term solution for the national security interest of the united states, other involved countries, and one that does not simply the ground for future crises. in order to learn a bit more about these issues we have been

carrying out interviews with a wide range of afghan stakeholders. one of the things we have learned is it is not necessarily the most forceful approach to divide afghanistans actors into predetermined interest groups. the influence of the old wood had been leaders is waning and changing to new figures, new economic actors that are emerging and combining with the political elite, tribal leaders are becoming security actors. civil society and women's rights activists can also be combined with ethnic politics and patronage as well. there are broad contours to the discussion about the possibilities of a negotiated peace within afghanistan that i want to describe in a very preliminary way. just to give you a sense, we have been working with a pool of 110 interviews which conclude around 35 or 40 mps who are incoming or outgoing, sometimes we don't know which.

the ten members of the executive, mostly ministers, but also other officials involved in the national-security apparatus and government of afghanistan, ten members of the high peace council, half a dozen or so former or current governors of provinces in afghanistan, several, about sex, former taliban leaders. another five or six former commanders. a small number of current taliban commanders including active commanders in the insurgency. representatives of civil society and human rights organizations. these categories, as i say, overlap. at least 15 afghan academics, policy analysts and media figures, and also business figures. there are a few areas where we need to go further and get further representation of melody institutions. so that is a sense of what we are doing. we have been doing that a lot

ourselves with a group of very capable yang analysts. one is here today, and he may be able to shed light on some of that as well. of want to just touch on five things that come from this discussion as well as the of the conclusions from the frequent research trips i have been making to afghanistan. the first is that the drivers of the conflict are widely perceived to be changing and becoming more and more centered on domestic issues. again, this is not to say that people don't speak about pakistan. they speak a great deal about pakistan, but also increasingly about iran. this has elements of current events that are driving the discourse. many afghan leaders are increasingly asking why we are so vulnerable to these factors. there are really to drivers of the conflict domestically within

afghanistan. both of these have very localized manifestations. again, one is the presence and the behavior of foreign forces and the role of the u.s. within that. the other is the weakness and abuse or corruption of the government and various forms. i will build on that point by expanding on what we are hearing about both of those. first, and terms of the military effort and the u.s. role and the presence of foreign forces it is pretty much unanimous. out of 65 interviews that i have looked at, only one suggests that the u.s. should not be directly involved in the negotiated solution to the conflict. one out of 65. it is a very, very broad theme that as a man player to this conflict, one which is paying the huge costs and of blood and treasure of supporting the afghan government and fighting the war the u.s. obviously has

interests that want to preserve or pursue in afghanistan. there is also a recognition among a lot of afghan leaders and stakeholders that those interests are not necessarily centered on bringing peace to afghanistan or upholding the rights of afghans or bringing democracy to afghanistan but a centered on other issues. those goals and what they really are remain very opaque to almost everyone at all levels of afghan society that we and spoken to. this feeds the well-known speculations and conspiracies that all of us to work on afghanistan are aware of. these create realities on the ground, not just rumors, but the fabric of politics. there is a huge communication gap regardless of what the strategy is. many speak of the need for the u.s. to communicate more

directly to the people of afghanistan themselves as well as potentially to the taliban. beyond polls there is the actions. the actions of the u.s. and the strategy which has been discussed by both speakers and creating a gap between the reality on the ground and the rhetoric of the government about its pursuit of peace through reconciliation and the use of the high peace council or whatever other aspects they're trying to put in place. there are a range of views, predictably, about that. there are many who support the escalation of the military strategy right along the spectrum to those who call for an immediate the escalation and with the -- withdrawal. the point here is the ambiguity over both the long term strategic partnership between the u.s. and afghanistan and the terms of the shorter-term

drawdown is creating a situation where not knowing the framework the u.s. applies to this conflict these people very uncertain as to the likely course of events. this is feeding a range of conflict reducing behavior's deepening the political discourse, more looting forms of corruption, reliance on local defense imperatives and all kinds of other actions that the parties domestically are taking to the conflict. so that is on the foreign forces u.s. side. in terms of government weakness there are a huge range of issues that come up here. there is an interesting focus that for me was quite different from the way i had thought about corruption and government weakness previously. there is a general sense that the concentration of power in the afghan system currently is related to the problem of nepotism and unfair appointments.

people focus on that much more than necessarily the theft of money for different kinds of problems in getting predictable institutions and speak a lot about the representation of various groups in state structure. this is not a new issue, but i think it is deepening and linking up with a more emphasized interpretation of the conflict by a lot of groups. obviously that is of deep concern and potentially is an issue where some expressed concern that the taliban come to be seen as representing passed in interests which would be a dangerous turn. there is an interesting side note here and which many people also talk about the deepening underrepresentation, and people talk about this from all sides. i can tell you, it is not that one group feels this all leaders in all groups who use an

ethnic discourse talk about this problem. they talk about it also in terms of their current leaders not been able to represent those interests. they talk about it with this concern i just mentioned of not making the taliban the representatives. so it is more about the groups and about the rights of those groups being preserved than it is about returning to the old leaders who claim to represent the scripts but, in fact, have much reduced legitimacy among them, it would seem. there is also a kind of interesting range of how people talk about whether the problem is the institutions of the state or the individuals. this is interesting because it relates to the issue of the constitution as a sensitive issue that has to be negotiated. ..

>> it may be that it's less about the shape, the final shape of the constitution than it is about to make sure the mechanism can be found to preserve the core issues within the constitution that the different groups are concerned about. let's go beyond human society and civil groups i would add. as an example, the phrase that quickly comes up among a wide range of stakeholders is the constitution is not the koran. and that issues about the nature

of the institutions of the state are already aligned debate within the particle system in afghanistan a month political opposition groups and the government. finally, on the government's peace plans, the high peace council and its role, there is a pretty white perception that this high peace council will have a lot of trouble playing a constructive role. the members of the high peace council themselves most frequently viewed themselves as playing a role of mediators and somehow bridging the gap between the insurgent opposition and the government. nobody was not on the high peace council really shares the view that they can effectively play that role. at the same time, a wide range of stakeholders don't really see that they can viably play the role of a negotiator on behalf of the government, an agent of the government, because of the perception that the real

discussion about the terms and guarantees peace process would have to bring forward isn't really house in the high peace council. what the council and maybe interaction with it might do would be to do more to promote a conversation between the various interest groups that are currently within the political system in afghanistan, and it seems they are not doing that very much yet but this is a potential avenue or role that they could play. probably alongside other actors. so what does this maybe point to in terms of the shape of a political process? building on those better than already made, the first from our point of view of the research that comes to very clear is the u.s. has to get seriously stuck into this, come to the forefront, and to be very clear about its positions and goals. as a participant in the conflict as well as a concerned party or supporter.

and that instead of pursuing perhaps an independent or d-link policy of fighting and then transitioning and withdrawing from we perhaps need to seek a framework with a drawdown of foreign troops can be interlinked with the steps both by the taliban to the escalating violence, to remove the influence of foreign enforcers on the insurgent side as has been going to come and to facilitate taliban legitimate representation within the system. but a key issue here seems to be the definition of future security arrangements. the current policy i think in professor jalali's framework i would argue is led by part of the strategy or in primacy, is that any peace negotiation will likely involve a discussion about how the national security forces are structured.

and one early point of evidence for that is that those eight or 900 activity around reintegration at the moment, one of the key concerns of all of the commanders are stepping forward, even in the limited areas where they are is very much to retain their arms and retain security responsibilities in their areas. so there seems to be a tendency were a framework for securing, for security of all of the parties has to be part of a peace agreement here and next week on friday, there is an interesting group your usip with the ministers of interior and defense of afghanistan will both participate and i'm sure talk about aspects of transition. this framework about withdrawal and de-escalation also needs to be linked to a reform agenda. of the institutions of state and

of the individuals of state, and this linkage may be needs to be motivated by emphasis also on defining the terms of that longer-term strategic partnership between the international community, the u.s. and afghanistan. i think we learned that preempting spoilers will require knowing more about the economics of the actors in the conflict which are causing changes in interest to emerge. so i would just conclude by saying that maybe in addition to minna's arguments about the need to open a process and with the shape that might look like, the u.s. is involved in has to be underpinned by a clear and strong commitment to that process. to my mind this means we need to articulate within unisys a

couple of things. one is a durable political summit among active actors within afghanistan is possible. and secondly that such an uncommon is essential to sustain the meeting the president's core aim to prevent the recurrence of al qaeda and other groups to the region. if those two realizations can be made it becomes more obvious that using diplomatic means to seek a diplomatic process that is durable within afghanistan will be the most effective way to do much, much more with much less both in terms of blood and treasure than a policy that only emphasizes the escalation followed by hand over to a very shaky regime at this overtime will much better secure the long-term national security interest of the united states as well as the interests of the parties within afghanistan. thank you. [applause]

>> thank you, and thank you to all the three speakers for very, very rich presentations, which both teachers quite a few lessons but also holds quite a few new questions. my policy is to offer some reflection before we start, and hopefully to those reflections will further stimulate the debate. i was reminded this morning about the engagement in afghanistan. the guest house where we were living tended to discuss issues, but we also had -- before written? in discussion with other guests at the guesthouse. and, of course, that also is telling not only because engagement but because that engagement is also one key

resource in reducing the ideas. softly we will find pure reflections and resolve this even more tangible ideas from you and the audience. not that i will deprive you the opportunity to ask questions, it is your privilege and you're right. let me limit myself to three brief reflections. the first one is on what is potentially a strategic gap between the military and the public part of the strategy? as andrew reminded us, what we have at the moment is really all we talk about his talks. it's easy to mistake this talk about talks. they are are not really anything that it must do concrete things work as far as, at least as far as we know. there are a number things have been point out the past few years which could possibly inside the scene.

that is also all. i haven't spent -- i've been visiting regularly but only for short visits. one of the things i was struck with was here perhaps at least a little bit, i think you're absolutely right, minna. over the past two years there's more and more interest, more and more support for the idea that the political process will be necessary. my sense from his last visit was really bad there has been a setback in terms of support for a political solution. perhaps not so much with international community, but more so within, particularly the afghan political elite i would say. i actually wonder if the conference -- the lisbon conference and the relaxation of 2011 deadline, the 2014 deadline

really contributes to that more lukewarm attitude to need for clinical process. -- for political process. we've heard a lot in these presentations about military strategy and the possible political impact of the military strategy. i think many of us, many of the people we talked to in our research are really skeptical about the ability of the military surge to produce a conducive, starting point for a conducive political process. and here again, this is perhaps a different aspect of the gap. at the moment we have a military certainty which is very much driven by the international community and the international community i think increasingly

means u.s. where as the very responsibility for the politics is supposed to be going with the afghan government. and there is a cat. that is potentially quite problematic. another aspect that strikes me as problematic when i discuss this many, amongst the afghan political elite, political association seems very much perceived as a zero-sum game. and without criticizing you for what you did, trying to come because i think the way you laid out your positions is accurate and also flexible your but once we lay out the position, there is also the risk we can't -- not only those positions but the perception that it is a zero-sum game where the party said that at the table, show their cards.

because as you rightly said, a political process is like if something goes wrong, in that long drawn process of course positions, perspectives are transformed and compromises are being worked out. and what initially made look like a need for a compromise may actually have, may end up being a comparability between positions that looks very, very different. so i guess what this brings me to is really a rather general and overarching but nonetheless terribly important question, which is really what are the possibilities in the current climate given the skepticism within much of the afghan ,-comgovernment by and large part of the international community to develop a politically, they truly politically driven strategy for afghanistan. the second issue i want to pick up on is the issue or

consultation with the afghan people. and you may forgive you for being a bit selective but i'm trying to push some of the issues which i think have not received the necessary attention in the debate. there is certainly a widespread concern amongst many afghans in afghanistan in the diaspora are what the political process result in terms of hitting up over the past 10 years, giving up on rights. there is certainly very little dialogue between anybody who has an influence on the very strategy and those who express those, larger civilian population. as we heard hamish say, in many other consultation, people are not necessarily so concerned about constitution itself. this may be a bit of a surprise since from the international community we say the constitution is not up for

negotiation. that's not necessary such a concern. we also talk about red lines again. most afghans seem not to think that entering negotiations with a finite set of red lines is very constructive. but there are deeper concerns about rights, about justice, about what sort of afghan state, what sort, with what sort of protective mechanisms for its citizens, or what welfare for its citizens that would come out of negotiations. so there is definitely a need here for some type of society consultations. hamish use the term inclusive, inclusive peace process. what the peace process should really look like is something i don't think we have a sufficient attention to. there is no doubt that given the experience we have from peace

process that the durability of peace hinges on such rather consultations. existing mechanisms doesn't really seem to contribute to this. of course, back in the beginning of the decade was the electoral mechanisms, the representative mechanisms could really be the mechanisms through which the sort of consultations should come about. but that doesn't seem to effectively be the case. the peace council is a new invention that is possibly also fostered such a dialogue. at the peace council itself doesn't necessarily see this as a central part of their mandate. so i think a key question here really is what could be the shape of a peace process which is inclusive, transparent or perhaps even what exactly is the type of consultative mechanism that should run throughout the

possible peace process that could really make the voice of the innocent or the non-armed or the civilian population heard. and then finally, and again i allow myself to ask a rather overarching question, what should be the contours of the negotiation process? we've heard here, and i think with a good substantial to his argument, that there is no way one can think about the peace process in which there is not a commitment by the united states. it is a critical party. what exactly the form of that commitment should be is a different question. we also heard, and again i think very convincingly argued, the engagements from afghanistan's neighbors is critical. and we also heard, again i think, the current escalating

needs of the afghan presidency and the afghan government is a liability. and i certainly got very concerned about that because it seems to me that at least we are now at a stage where there could be reasons to ask whether, not only the government, the tensions within the government are of such a scope is not fully good to lead a political process, but, in fact, whether burdening this rather, this rather tender alliance that we call the afghan government within the peace process could be held the very nature that tips the balance. and one thing that was emphasized by several other speakers which i also think is terribly important, the whole question of readiness of the taliban. at one point, it struck me as i

listen to you, what is the impact of the current driven military strategy in terms of helping the taliban are encouraging the taliban to develop that readiness? we don't know much about what sort of reflections go on within taliban leadership's, leadership about a political process. but it wouldn't be surprising if the fact that there is inherently a rather intense military surge that is taken away from the energy that could otherwise be put into discussing what a political situation could look like. so somehow is there a way in which one can actually create a more conducive space for bringing about a political reflection within the movement itself, because that is certainly a rather important element of readiness for talks.

basic question accepting some sort of representation for insurgents, numerous countries have been suggested as the host of a new taliban office. nobody has been wholeheartedly enthusiastic so far. i think but again that may also have to do with the fact that there is no clear signal from the international community that this is something that is really wanted. and, finally, and i think minna said this very clearly, who is it that can be critical third party in this situation. there are certainly at the moment many tracks, teaching tracks perhaps, not that there are any tracks but there are many tracks and nine of them are terribly strong. none of them have the support that it takes to become strong. but most importantly, i think we need to ask at this very moment

what are the contours are constructive political process in afghanistan, and what would be the first elements? because i'm not sure at the moment we're really making progress in terms of converting the past 10 years of the international strategy into what is first and foremost, a political strategy. thank you. [applause] >> i'd like to thank the four panelists are very interesting and rich presentation. now, over to all of you for questions and comments. although preferably brief questions and comments, but we have two microphones on either side if you want to come up and ask your questions from there. we will probably take two or three at a time and then get the pin was an opportunity to respond. please. spee if you could also introduce

yourself first. >> i work at the department of state. minna spoke of the war economy in afghanistan and professor jalali i think suggested that the war economy is also a large part of the explanation for the increase in corruption. if a political strategy succeeded, what is the economic future, postwar, post-withdrawal of foreign troops? we hear that afghanistan also is the world's largest producer of opium. nobody has mentioned that in the course of this discussion, but it is an important element of the economy. so where does -- what's the future of the economic future of afghanistan and the afghan

people? >> scott? >> i work on rule of law issues. my question relates to parliament, and i realized and asking it we still don't know what department will look like. and it could take a shape that this question becomes irrelevant, but if we assume that this crisis over the parliament gets resolved and you have established body, i wonder what role, if any, do you see them playing in talks as you mentioned the need for more inclusive process and accommodating different groups? because as flawed as the election was is still a body that has leaders from around the country representing different parties and the only formal institution in high peace council i would say which gathers those leaders in a peaceful setting. and so, both in terms of i guess hamish, your interviews with a lot of parliamentarians, they see themselves, their institution playing a leading

role, and even if not, for others is that a potential mechanism for introducing this inclusiveness or not? >> one last question. >> a couple of strategies proposed, which were interesting, one was a semi-peacekeeping role essentially between the afghan government and the taliban as two warring parties. a fact that came out was there should be de-escalation with insurgent and leading up to a cease-fire. [inaudible] >> secondly, in both the strategies we are not really talking about disarmament perhaps, in which case can we

really imagine a sustainable peace after a cease-fire or after some kind of peace accord? thank you. >> okay, whoever wants to take on some of those questions. >> on the issue of the economy, i think one thing that is not always there is that there has been economic growth for the last 10 years. it's unclear exactly how we measure it, but there does seem to be at times double digit growth. and i think a great deal of potential with peace for capitalizing on that and on the sort of, it's very energetic face of afghans. if it's coupled with regional infrastructure initiatives and

with trade agreements across the region and so on. people of course speak a lot about the mineral wealth, which i think has a potential of course to become a foundation for afghanistan, but it will take an awful lot of time and investment. and it will take security. to be able to really harvest. i think, scott, you're absolutely right that the parliament passed to be somehow involved. it is a body that could potentially provide some kind of inclusiveness and a sense of different regions being represented. i don't quite know what form that might take, but i do think that as soon as the parliament is accepted as not being -- as excepted as legitimacy, there

needs to be thinking about how to work that into. on the questions about de-escalation, disarmament, yes, it's very hard to see afghanistan really going through a full disarmament process. this is a country that has a great history of weapons being held in homes. i think it's not so much about the arms. it's about the question of how the various groups are integrated into this, the political process and have their integrated also into security forces, and those questions. there's a lot of details that would need to be worked out. >> yes, about the economy, economics in afghanistan future depends on the stability of the nation. talking about opium. there's not a long history of

opium production. it started as part of the war economy in the 1980s during the soviet occupation. and then would be breakdown of state control or, and also the droughts and others and some of the war, it actually became their regional problem. i think mainstream, this counter narcotics strategy, in all aspects of development, that security, governance and economy, there's no simple solution for that. today, i think the most, you know, the part of the opium is produced in the south which is unstable. in the north and west, it is easier to control but in the south is very difficult. on the other hand, as long as

the insurgency continues in the south come it will be very difficult to control production of opium. with regard to the peace console, peace council is something which is created by the government. people who are on the peace council, those were hit by the government and, therefore, it is actually the voice of the government. but parliament is not. all these peace jirga and other things are not going to a. i think parliament is the real state of institutions that can play a role because they represent the people across the country. i think this problem, i'm not talking about the secular parliament because for the past

one year they were not able to elect their speaker. but generally speaking, parliament i think yes, it is a very good institution to be involved in the peace process. with a peacekeeping role, i think first we have to the peace in order to keep. there is the peace in afghanistan. and when you have peace, peacekeeping. in 2006, when many internation international, nato countries came to afghanistan, there was no peace to keep. and, therefore, i think first we have to some kind of peace. you have to keep the peace first and then probably that will work. >> a couple more questions. marvin. >> marvin weinbaum, middle east

institute. you made reference to the fact that we really don't know much about what's going on in the thinking of the taliban. should we be talking about, however, about whether in fact we can treat them as interlocutors here in the sense that we would have some common sense that they in fact understand compromise and what that means? it was suggested, and i don't think there's much to indicate that it has changed, and i say that even with -- they never represented -- they never represented the connor hart shura. what we found was that they we

were, they had a true believer notion hear about the righteousness of what they were doing. and the sense here of there being part of a compromise of power-sharing, taking cabinet positions. it seems to great many of us, i think, is antithetical to their thinking. so in our effort here to find the way out, have we perhaps projected onto the taliban the way we would like for them to respond if they were, you know come even like other afghans? because you can make it argument that their ideas, the traditions they acquired in pakistan gave him a different mindset than most afghans, for whom the idea of compromise is very easily

relied on. thank you. >> brian marshall. i've been serving in a series of areas of the state department. one thought and relates to a previous question, actually i'm struck by the fact that always the reference to the taliban is not doing individual come just to the taliban. and i wonder about do we have a good idea as to who has the authority to speak for the taliban interests in at least political discussions? for example, there was an awkward situation a few months back in which someone claimed to be speaking for taliban interests, and was found to be a fraud. >> colin cookman.

doctor nixon sort of tucked on this -- touched on this. i was wondering if you would discuss the role of the militia programs which delays incarnation of which i think the afghan local police, the role to which these actors tie-in to the karzai government network and the degree to which they, assuming this negotiations were conducted with the karzai government in the lead, the degree to which it would lead to smaller local groups would be a part of that process, or would be pursuing their own sort of local economic or otherwise, other interests. >> take two more questions and go back to the panelists. >> good morning. i work as an afghan analyst. i have been involved with the peace process in nepal and sudan and iraq.

i have a number of questions. first of all it was a wonderful work carried out by you. i appreciate that. a number of things that come to, and i would like to share with you, one of the major demand of taliban or other insurgent is basically withdrawal of foreign troops from afghanistan. in many cases they demand that. and you have coded that even the afghan army and police can not ensure peace in afghanistan. and you have chief of afghanistan speaking out day before yesterday saying afghan army is lacking the moral leadership. now, if the capacity of afghans on military police is a condition we have to provide -- why it's not elaborate more on that side than how we can bring the more leadership because we

have people who are leaving their duties because of the lack of transparency and so forth, in the country, the nationalism. and again, you talked about the political sentiment in afghanistan. no peace -- [inaudible] afghanistan, in fact when the peace process came to afghanistan it was very much urban-based, you know, development, services. and the taliban during their time when i have been through the country during that time, it was very much seen in two different fronts. in the rural afghanistan was a much seen as security, the fact for stability. rural afghans, when it comes to the urban population there same then as an occupier who have

given the basic right of freedom. when the problem started forecasting very much on the urban population, therefore they don't see any change. with all the development, all the millions of dollars spent in afghanistan, they don't see that change and that contributes to the volume, that from 3000 taliban it has moved to 5000 taliban. [inaudible] >> that's an important. one of the things which is probably could have been incorporated is that the taliban rule,. [inaudible] now, i wonder if north country still not heavily supported the taliban. now, the pressure on these countries if you take the example of pakistan is limited to drone rocket in pakistan. but there is no other pressure

in term of policies, strategy. and as you know these are very strategic allies in the war against terror. so why strategic effort is not taken by all the nato countries and united states to pressure is pakistan? you talk about the haqqani network. they are all in pakistan. so why not put pressure on that? that is very important element that i see about that. i would fully argue with professor jalali that there are -- [inaudible] not really doing so good in afghanistan. during the 30 years of work, not a single movement emerge in against a. despite the fact of all the war but nobody wanted to north afghanistan or south afghans do. they fought among themselves but they maintained the afghan national id. so this is really not a big thing on the table as an

alternative afghan i can assure you of that. and again, let's be hopeful about it. there are lots of hope for things happening in afghanistan. we have fundament. actually take it has signed democracy we're talking for two months to select the chairperson of the parliament, but they are not developing. i would say it is good which they are talking. you have the professor as a leader, and you have got a female activist coming from the west. they are talking in the public and talk. so i see a sign of improvement and progress your thank you. >> my name is debbie smith. i run a nonprofit organization for building a school in kids with disabilities afghanistan. my question is, you addressed talks that should happen between the taliban and i believe it was isaf nato forces. and you listed some conditions

that each party could bring to the table. however, nowhere did you discuss the role of the future of women and girls. and i just wonder how we can build a durable peace in afghanistan without addressing the rights of women and girls in the future of afghanistan? >> let's start at that end of the table now, kristian and hamish. >> i don't know my question. >> in the interest of time i won't touch on all of those many interesting questions. i think maybe what i would touch on was the question about parliament very briefly in which many parliament members are also members of high peace council, and those particular respondents do have a view of the role which is much more focused on reaching

out to different kinds of disgruntled groups in their own regions of the country, et cetera. so there may be grounds for the. a lot of the respondents outside either the high peace council or the parliament felt that i think more because of sort of ineffectiveness or division of the parliament rather than an argument against it is intrinsic or theoretical role in this regard mentioned frequently mechanisms like those, like the emergency constitutional jerk is as kind of way to get views from across the country represented. certainly your characterization that most felt because it's an appointed body, the high peace council is limited in its ability to play that role. i think another thing that was interesting is that my own work in the past is on local

governance. we have quite a formalized debate among western specialists about whether decentralization is part of the solution in afghanistan. a lot of the way of this issue is interpreted through afghan stakeholders i would say is about diffusion of power centers generally. there's too much power concentrated in the presidency, anything you can do to defuse that outwards on an institutional basis is a good thing. not necessary downward, but to other parts of the government. slightly different issue than your core question, scott. they don't take up the question about peacekeeping. i mean, i think we have to be realistic. the likelihood of a robust international interest in the scale of disarmament and peace keeping effort that would be needed to do a traditional post-conflict peacekeeping effort in afghanistan i would say has zero chance of manifesting itself, even after a political solution to this conflict. and so, the nature of the

political solution in how it deals with armed men in armed groups is going to have to take into account the structure of the national security forces or the national security framework, shall we say. and i think the current direction that the national security force framework is being played out raises some questions about how adjustments could be made to make it led by a political process, if one was to emerge. and those two directions are obviously a great deal of interest and effort. and i was in some ways more effective effort than in the past, and increasing the size and as well the quality of the national security forces. there are a wide range of opinions on whether any of that is sustainable about attrition rates and other things, which others can speak more effectively than i can. but the second direction is also the afghan local police which was mentioned by colin and

generally the localization of the duty which has been a kind of recurring theme, serving in the entire time i have worked in afghanistan. and those two trends are not necessarily the same, compatible or in the same direction. if you mobilize an armed local group and if you try to increase the size of the national army and have a more formal framework of security forces, and i think it's clear funny which is coming through among the commanders which currently expressed interest outside basically the core kind of areas that the taliban has a stronger structure, but nevertheless their strong interest in retaining their ability to basically manage their own security speaks to the need for a framework where mutually reinforcing our mutually checking security arrangements between the armed groups would have to form part of the

political process. and just very briefly on marvin's very interesting question. in terms of the leadership level, this discussion that we don't know enough about what the talibans leadership position is, i think it's an important one but i wonder whether we ever know that much about an insurgent organizations true political position, or viable outcomes and to enter into a process. that doesn't necessarily mean committing to it in state or in negotiations, but by putting forward a clear position on the part of one side, you may elicit a response which tells you more about what the position of the others is. secondly, i would just finally say that while we may not know much about the position of the leadership, i would argue that we ask you know quite a lot about what motivates and mobilizes a large large portion of the fighters were fighting in the insurgency. and they are the two things with all pointed to.

their poor government performance and a sense of injustice. and they are the presence of foreign forces. so by putting for scenarios in which we don't agree to withdraw foreign troops as a precondition but we say no, we don't agree to that. here are the conditionconditions under which that might happen. we think that process and possibly elicit a response. possibly not. the future is uncertain. but in addition, that process could be even better linked to certain amounts of certain element of a reform agenda that is underpinned by a long-term strategic partnership. that in turn might elicit a response. again, it might not. and so there's a political means to undercut a huge amount of the non-core ideological taliban as well as what's currently what is being pursued which is a military and the offer of surrender.

>> about this, who speaks for the taliban, i think it depends on the situation. different groups speak -- i do think taliban has a position yet other than their rhetoric's and some statements that were made by individuals. in fact, we should not ignore the role of pakistan here. pakistan is shaping and trying to control any kind of negotiation with the taliban. therefore, there are groups in pakistan who are getting their cues from pakistan. the only group that so far has offered a position was -- actually they sent their delegation to kabul. but, unfortunately, neither the government or the taliban, they do not have a clear position

that is clergy find. so, therefore, since there's no clear position it would be difficult to start that process. afghanistan and the international community lost missed opportunities in the past. one was in 2001 where the majority of talibans, 90%, wanted to join the political process. but they were excluded from that because all taliban were considered to be part of al qaeda. in the next time that they offered, came up in 2003-2004 when he had a meeting in -- they contacted me. at that time the position was clear, very simple. very acceptable. they wanted protection.

at the same time they had to be allowed to continue their political and peaceful means. but they wanted this to mean guaranteed by all stakeholders, at that time not only afghan government, all ministries, ministry of interior, ministry of defense, ministry of intelligence, coalition forces, isaf, and all countries. and they wanted us if we can create a mechanism that altogether can guarantee this protection and a lack of political activity, they will actually join the process. but, unfortunately, neither the afghan government came up with an agreement, noted international community was so enthusiastic to support this idea. so then after 2003, after that

today the position is not as easy as in 2003-2004. today, you have the pakistan influence. at the same time the international community. it is very difficult now to realize what is the real position. yes, maybe that position can be clarified when you start talking. however, talk for talks is not happening. the rule of the militia, you know, in the past we have had experience with malicious. and although you call it afghanistan national please are afghan local please come you can give it any name but it depends on the situation on the ground. they help the afghan government

in order to help, local security, and even fighting outside the invasion. however, that worked only when they believed in the viability of the government. [inaudible] >> that works with each other when that system is there. that system is no longer intact. so at the local level, if they believe that they can be supported, they can believe in the viability of the afghan government, they will cooperate. however, the afghan government is no not in a position to suppt them, then they find their own ways to reach out to other groups internally or externally. i think -- it might work. at least they can create a

situation where all local strongman will not create their own militias. something that is happening today. because in the north under the name of local police, the warlords, strong local warlords are arming their own people under the name of the local police. which is a very dangerous thing happening. i think some of the insurgencies in the north was not ideological. most of them was because they were mistreated by some people in the north. today, when you see that people are coming to the site of the government or not, these are the same people who, for one reason or another, joined the taliban. not the taliban that actually were known to be -- or haqqani group. thank you. >> if i might just collect some

of those questions under the framework of what i sing at the very end of my presentation, which is about repairing the parties for talks because i think a lot of the falls into that idea. and i think there's a lot of work to be done by the international community. to try to help these parties and try to help them make coherent. and if we start from the taliban and marvin's questions, i think there are elements in what the guesswork by various peoples, there is panels is saying might be the taliban's position. that might be quite compatible in fact with western physicians. we don't know what the taliban -- its guesswork. it's based on a series of interviews by different analysts of mid-level and senior of taliban commanders but it's based on others who speak about these things.

it's based on the talibans own pronouncements and what they put out on the website. but i say that one way we would start getting closer to what the taliban would be to support this idea of some kind of office for them, to give them a space or they can articulate their position. but on those issues where we might find actually a surprising amount of compromise are things like the question on al qaeda. there's a very clear readiness to start drawing some distinctions. i mean, one of the things that the taliban, at least people will say about them is that al qaeda is a religious issue, which is always created some differences. there's also, the history of how al qaeda and the taliban came to interact is not so clear-cut. al qaeda was actually -- other

groups originally. and then jalalabad mixed up with the taliban, and i think is always quite a lot of mutual suspicion. omar became -- osama bin laden. among the other movements does not ever a close connection. and so those are the things that i think any work done and can be a basis for change in their position. the constitution, i'm not sure that the taliban are really looking for government ministries. and maybe looking for influence in the south, and so again there might be some space there. there's clearly a mutual interest in westerners leaving afghanistan. that can probably be exploited in talks. so while i agree, and kristian, hereby. it's not that helpful to articulate positions because those will not be the final

positions. talks will change all the positions. but it might just be a way to start analytically thinking about how does one see a way forward and what issues need to be discussed and where the positions might start off at. and part of making, creating that coherent with the taliban is giving them, finding a way of giving them a platform. on the government side, i think there's quite a few things that have been mentioned, kristian also mentioned earlier, as to the afghan government leadership and support for the poker process, a question, and i would agree with the. i think there are many interests among the senior members of the government that point to perpetuation of conflicts, not the least of which is the money that comes through and the ability to partake in that, and

those inflows of money. but also things like the militias. i think we should be, rather than encouraging for the initiatives for localized and fragmentation, i think we should be asking the government to cohere as much as possible on also who are the players on the government side of the conflict. then on the question of civil society i think was important to bring up the women and children. i think the reason i haven't emphasized too much is i don't think this is something that the international committee should take on and make demands. it is something where we should be very actively building up the capacity of afghan civil society to articulate what kind of afghanistan people want to live in. and building up the capacity to put pressure on the parties, put pressure on the government, the

pressure on the taliban about women's rights, human rights, children's rights. and i think from my own testimony -- my past expense, the days in boston where we were pushing very hard for returns, and there was such a strong constituency among the bosnians who were insisting on those returns happening. we could come behind them and support them. so i think there must be a role for us to help galvanize both society and an articulate their position. and, finally, on pakistan and some of the regional questions. yes, i think more pressure would probably be needed. at the moment pakistan -- pakistan's situation is one that will probably not be very -- it will be hard to put the pressure on because i think that such a sense of fragility in pakistan itself. but i do think that pakistan is

starting to see the stable afghanistan is, in fact, in its interest. and i think that there's some potential there to also have, start having bilateral talks with india about afghanistan, separate from some of the other issues like kashmir. so i think is probably scope for engaging pakistan, maybe not talking so much about pressure on afghanistan. >> okay. i see we don't have anymore questions, and we are running out of time. i have one or two last comments, or questions. just to throw out there, but i do think for me, my perspective, the militia issue is just a very good example of i think the contradiction between what we currently have -- or the lack of a political strategy and a military strategy. there can be some short-term stabilization gained at a very local level, possibly with some of these initiatives. at its very striking to me in

2002-2003, when i get a lot of research, the very number one demand was disarmament. it's very hard to find any example in recent afghan history of where in certain weapons at the local level our creating militias. so just to me, i think that's a critical issue that we might be getting some short-term gains from that but i think we have to be moving more towards looking at political processes and politically negotiated settlements. i think more weapons, the more it will complicate the more strategic level objective i think moving towards a politically negotiated settlement. the other interesting thing that came out is a discussion, the real need for the u.s. to i think clearly articulate what its position is. there's a lot of questions about this. again, hamish mentioned, when you're in afghanistan, the

theories of what do we want to be there. the very senior level afghans, cabinet level afghans will tell you believing that we are really there, we are there backing the taliban, arming the taliban because we need them there to justify this long-term because we really want long-term basis there or to steal their resources. or whatever the reasons are. but this lack of clarity on what our clinical objective is and what our position is regarding the negotiated settlement i think is very damaging right now. but that does create tension why think the u.s. needs to articulate the position, but what the u.s. may find right now is this has to be afghan lead and led by the afghan government. again, we've heard from many the afghan government is the number one problems of fueling the insurgency. they are a party to the conflict. so are they actually the right body to believe the process?

i think just a real tough issue there that needs to be dealt with, but also get a urgency for the u.s. i think to clarify what its position is. i think the issue of the withdrawal of troops, we didn't talk about that too much, but it is certainly one of the key demands of the taliban. and yet there's a tension there where lisbon in the context of the transition, the transition of the afghan national securities lead, but didn't immediately clarify that there'll be long-term strategic partnership agreements. we'll be hearing about that more in the next few weeks i think about longer-term commitment. nato secretary-general also talk about longer-term commitment and you know a bit of ambiguity about 2014, exactly how matrix do stay behind. it seems to be clear there is a brand for troops to stay behind, not least of all the afghan, the

afghanistan national security, there is no air force. it would be an importantly important role. i think the issue i think is going to be interesting in how that is resolved, demand for withdrawal of troops and get increasing signals that we don't plan to withdraw. and then lastly i think the issue of the afghan national security forces, which a real push in terms of numbers now, and yet it seems pretty clear from the current fiscal and five in this town that the sustainability assumption seems to be a bit of a stretch. we had good meetings in kabul with the general caldwell and his team are doing excellent work but they're also very explicit that the systemic cost cost of the nsf are about $8 billion a year. and where is that going to come from? so are we creating these institutions that are completely

unrealistic in this context? and given the context as a troops withdraw, the appetite for funding these things is going to also decrease. we're seeing that in the right. for everyone american troop could pay for -- the fact of the matter is the american congress is much better to pay for one american troop. but also just the amount of resources that is invested into building the afghan national see kitty forces relative to civilian institutions. and again, this problem that you don't need to look too far in the region to see what did he stabilizing consequences, and so question i think is also the umbrella of isaf starts to move away, how will the afghan national army in particular be

perceived? we know the afghan national police is not too terribly will proceed. it has been so closely linked to isaf that i wonder will the perception of the ethnic imbalance really come to the floor, and could the exit strategy which were hinging quite a bit on actually potentially become a decisive force if it ethically or in terms of military imbalance. so again just to highlight some other topics and some of the points that were touched on, but i would just like to conclude by thanking again the panelists for really a rich rich presentation. survey on what i think is i think the most important issue confronting the u.s. afghanistan into day. ..

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website. you'll see a lot of interesting writings including a recent

piece on the development of both drugs and devices for heart disease. anyway, our topic today is medicare. and we have the title reforming medicare at last, a practical guide for reluctant policymakers. i have to give joe credit for the timing on this. we happened to have this in the same week that the president's budget was put out and the newspapers have been full of the debate going back and forth between the republican leadership and the white house and the democratic leadership about sort of entitlement reform. now, for any viewers who don't understand that term entitlement reform, there are three major entitlements -- social security, medicare and medicaid. and that's what the debate is about. and there's a lot of jockeying

back and forth about who should go first with this. and some statement from the white house has even implied that this shouldn't be in the budget. it should be the discussion in a back room. so maybe our purpose today is to bring this out of the back room and to give these people something to talk about. now, let me say one thing. i've got to put joe on notice here that he's really got to perform today. our friend john goodman recently was talking about a discussion he had with a taxi cab driver in boston about the massachusetts health plan. and he just added that he got a lot more useful information from taxi cab drivers than he did from think tanks like aei and brookings. now, as i understand it the aei management has taken this serious len considering replacing all the economists

with taxi cab drivers. so you've really got to produce this morning. so we'll start with joe antos. >> thanks. i think i will prove john goodman write. so let's see here. so you probably noticed the panelists snickering at the title. i got the reluctant policymakers part right. practical guide, well, we'll see. this slide i think captures a lot of the problem with medicare. what it says essentially is that it may be socialized medicine but it's ours and we don't want you to touch it. and that's i think one of the key political problems in reforming medicare. the program obviously has problems. you've heard this not just at the american enterprise institute over the last 20 or probably 30 years. but you basically heard it from

virtually every health policy analyst in the country. medicare is a program that's in trouble. high and rapidly rising costs, which impinge on our ability to spend money not just at the federal level but also our own money. after all, who pays for that federal spending? we do. there are some issues that might be considered fairness issues. the one that most people think of is the point that we're accumulating, in essence, a debt that our children and grandchildren have to pay for. now, i suppose the bad news is that it's no longer grandchildren. it's really children. we're that much closer to the problem. but we like our grandchildren.

we really like our grandchildren. but our kids, we're not so sure about them. that might be an excuse not to do anything. and then of course people -- will say value or quality or things like that. but i consider that to be just a manifestation of market distortion. if it's low quality, there must be some reason because the system didn't react to what allegedly is the demand for something. so there are market distortions. i think that's a key part of the medicare story. the other side of this, however, is that medicare is the single most powerful health insurance endity ithe entity in the u.s.h care system. it's the largest. it doesn't pay for more than

half of health spending but it's the largest single insurer. but more importantly of course it's the government plan. and so the reach is not just financial. it's also regulatory. and so it has tremendous leverage, which it can use potentially for good or for evil. so i'm going to quickly go through a bunch of slides in one form or another everybody has seen. here's the first one. these are the latest numbers from the congressional budget office on entitlement growth. and you can see that this is by the way post the patient protection and affordable care act, post the health reform act. and so cbo assumes that medicare spending will actually slow down a bit because of big payment reductions and of course they're assuming that medicaid will expand greatly and there are subsidies in the new health insurance exchanges.

so this is a slightly different picture than we've seen traditionally. traditionally medicare was the big winner or loser in the race to spend a lot of money. but let's not forget about this other -- in essence, this other entitlement, net interest. interest on the debt. so we have a gigantic problem, because, in essence, something like 75% of gdp is called for if we don't do anything through three entitlements and paying our friends out there in the rest of the world to allow us to continue to borrow. so it's a real, real problem. now, health reform. in theory, there's supposed to be a shift of funds essentially from medicare to the exchanges and to medicaid. i did a little calculation here. the green part that represents

the medicaid and exchanges recommends the increase in spending in those programs due to the health reform, at least according to cbo as guesstimated by me. the red part is the donation that medicare is giving. so if you think about it, it's a simple case of -- in concept, taking money out of the medicare program primarily through reducing payments to providers and shifting it over to medicaid and exchanges where at least many providers hope that the money will all come back to them. but the question is, what if those medicare cuts actually don't occur. and we have plenty of history here to suggest that they probably won't. the -- my story about intergenerational equity is depicted here. you know the story.

the baby boom generation is now entering the medicare age of 65. but the bad news is that after 20 or so years of baby boomers working their way into the system, the program continues to grow. it continues to grow because there are still people who are getting older. it continue to grow because those darn baby boomers are still going to be around, many of them. so it's a big, big problem. and of course according to the actuaries, the labor force that will support the program will shrink relative to the number of people in the program. and then finally, the -- again, something you've all seen before. this is from the latest set of trustees' reports. the unfunded promises over the infinity horizon, you could have had slightly smaller numbers but you'll notice those numbers end in a "t," trillion. that's not small change.

okay. so we're spending a lot of money. what are we getting for it or at least what are seniors getting for it? nobody can object. if somebody else wants to buy them something. are they getting something that they value? here's the sort of opinion polling that you see. seniors are said to be wildly enthusiastic about medicare and to some extent that's true. but i think the question is what are they wildly enthusiastic about? 90% of them have supplementary coverage. so when they say they're happy about the coverage, what they mean is that they're happy with the medicare coverage, plus the coverage that they get through their employer or through medigap or through medicaid or through the medicare advantage program. but medicare itself, not by polling but by revealed

preference, by the behavior of people, medicare itself isn't all that popular. otherwise, they wouldn't be buying these other programs. so think about that. if we're getting our money's worth there. okay. there are other issues other than spending that people talk about and they want to solve them maybe. and one of the issues that isn't talked about much but it's good to ask whether medicare is that progressive program that many people think. mark mcclellan wrote an important paper about ten years ago that suggests that it isn't as progressive a program as you might think. however, if you can see the slide you'll note that on average, seniors in this particular age get a transfer from people under age 65 of over $21,000. so in that regard, there's some progressivity.

we're talking about the fine points. but maybe that really isn't the picture. it's a little hard to know. gene stewartle who will join us shortly did an analysis using a slightly different assumption. and he shows that over the -- over the average lifetime of a medicare beneficiary that indeed the -- there is progressivity, that higher income people on balance don't get as much as lower income people. however, what does "get as much" mean? it means that you use more health care. so did you win or did you have lose? hard to say. but somebody paid more for it. an interesting aspect that i think a lot of people don't think about very much, gene has thought about this -- is that depending on your family situation, you could be a bigs t ifwinner.

and some people over the years have said that they'd like to somehow solve that alleged problem. essentially what happens is that if you're a married couple and only one of you worked during your working years, then both of you are eligible for medicare. and so there's a big transfer to that family unit, bigger than, for example, a single female who worked the same amount of time. however, again, you know, there's always a question of what should you do. and i think the answer on this one is that it's really not so clear where equity is. you could equalize things but you wouldn't necessarily have an equitiable solution. then one of the favorite topics of the last few years thanks to the dartmouth atlas is the big geographic differences in spending in the medicare program. i didn't have a recent mccallan,

texas, number but doesn't make a difference. you can see the relative rankings. mccallan is said to be the place where most medicare money is spent on a per capita basis than any area in the country. that may be true. but then you have to ask yourself, well, why is that? is geography destiny? if you retire in mccallan are you des continued to get multiple bypass operations? maybe you need them. but it really isn't very clear what that pattern -- how that pattern comes about. and it isn't all mccallan, texas. and some of it certainly has to do with the medicare program. some of it certainly has to do with medicare's policies about paying for services in different -- the same services in different locations. but it also has to do with the distribution of underlying disease incidents. it has to do with area price

differences, general price differences not specific to medicare. it has to do with the availability of hospitals and doctors. it's easy to not spend much money if you're in montana, because it's a long walk to the nearest doctor. so it's not clear. again, what's the -- is there a problem here? what is it? we don't know what it is. is there a solution to whatever the problem supposedly is? i don't think anybody knows. but then finally i just wanted medicare has tremendous leverage over the health system. and one way to gauge that, a partial way is just to see how much of various services are paid for by medicare. and so you can see that for major services, including nursing home services, which

medicare calls skilled nursing facilities, it's not all medicaid and it's not all private pay. in fact, medicare pays 20% of national spending for nursing home services. you know, the big winner seems to be home health care, although that number seems to go up and down. so it's a little hard to say. but the message here is that medicare is the single most significant payor in the health system. not just in general but also service by service, provider by provider, supplier by supplier. and that means tremendous leverage. that means that even the slightest miscalculation that leads to a minor error in a regulation has tremendous influence, has tremendous leverage in what goes on out there and it often takes years to recover from mistakes. it also often takes years to recover from smart things that

providers might be working to avoid. okay. so a brief history of medicare reform. medicare has been under reform for decades. people don't seem to be aware of this, but there is some reform going on regularly since at least 1983 but maybe before then as well. these reforms -- we never call them reforms. or if we do, we call them something else, like we call this physician payment reform. that worked real well. but they're reforms. they are piecemeal. but what it boils down to is that policymakers and experts, not just in washington but in the health system, have recognized for many decades that things have to change. and the medicare program does not work well. so i'm going to briefly hit each

one of these. so first payment mechanisms, new payment mechanisms. you know, fee for service medicare accounts for 80% roughly of medicare beneficiaries. used to be more. will be more in the future. if things go as planned. and the big problem with fee for service anything, but fee for service medicare is how do you get control over costs given that basically the sky is the limit. and medicare's traditional answer is control prices. and so how have we done that? well, i think the first really significant payment reform was the hospital prospective payment system. this is a form of bundling, a word that people now use and thing that it's a brand new term. no, it isn't. and this was the first move -- i think it's the first move -- i could be wrong about this.

i stand to be corrected. i think it's the first move medicare actually took away from cost reimbursement. and it was a real breakthrough not just for medicare. it was a real breakthrough for private insurers because it opened the door for them to move away from usual, customary and reasonable. it moved you away from -- and i think virtually everybody in this room is too young to know this personally. but you may have heard that people used to be admitted to the hospital on a friday and lay there. nothing would happen on a weekend because nobody works on the weekend. then on monday, maybe somebody would come and draw some blood out of your arm to do a test. and eventually they'd get around to doing something to you and they'd discharge you event actually and they kept you as long as they could because after all that was good quality care. you don't want to prematurely release a patient out to the wild. what was the point of all that? if you fill a bed, it's a payment. so -- and that wasn't just a

medicare problem. that was a system problem. so virtually overnight, at least over the course of a couple of years, the prospective payment system not only changed that sort of a mandate for excessive and annoying treatment or nontreatment to what some people think is the opposite which is wait until the last minute, rush them into the operating room and get them out while they're still bleeding. it's probably not that bad. there's probably some happy medium. but this is a policy that had tremendous impact. physician fee schedule. again, physician payment reform probably didn't work. the idea was that we should pay primary care physicians more. that was the whole idea. we still talk about that, don't we? and we have some new provisions in the health reform law that are going to do that except

they're going to pay for primary care services so every specialist in the country that actually offers primary care services will have office visits. we'll see how that works. fortunately, it's temporary. so here's a reform that was meant to do one thing and did exactly the opposite. it was also supposed to control overall spending. and that was a pretty successful effort as well. we had before the sustainable growth rate which i think everybody knows about now, before that we had something called the medicare volume performance standards. they were essentially nonbinding. and then in '97, the sustainability growth rate was created and a few years after that, we got on this interesting process of congress saying, oh, no, we don't want to cut physicians but we'll accumulate the debt and we'll pay it next year. next year i think the cut would be something like 25%. so that doesn't seem very

likely. there are other bundled approaches that people talk about. now i don't have time to discuss them in detail. but they're all -- they all stem from not 83 but well before that. because of course the hospital prospective payment system didn't just arise out of whole cloth. it was -- you know, it started allegedly in new jersey. so the problem here is if you only control prices, you're overlooking the other drivers of cost in health care, which is the use of services and the use of more expensive services. okay. next reform. medicare benefits aren't very good. so let's do something about it. one thing medicare, it turns out has never had, is actual insurance protection. insurance -- at least among economists, would limit your costs if you ended up in a

situation where you had to spend an enormous amount of money. well, there's no -- there's still no catastrophic cap in at least traditional medicare. but it's not for want of trying. and, by the way, i should have mentioned this earlier but most of these slides reflect the failures of my professional career. physician payment, catastrophic coverage. we'll get on. there's more. so this is one of my other failures. and, you know, it was a great idea. nobody liked it. why? well, in 1986, '87, '88, in that era, people actually generally had the kind of coverage that we were trying to give them. at least the part that they thought they wanted. nobody then and nobody now really understands why you want true insurance protection. but what about prescription

drugs? well, you know, in the mid '80s, drugs weren't as important. but a lot of people had drug coverage from retiree plans, that sort of thing, or medicaid. and so this was one of these great ideas where we were going to make people pay for something they already had. okay. so then move forward to 2003. here's one that actually worked. and it worked in more ways than just providing a new benefit, the drug benefit in the medicare modernization act. it worked far better than that but i'm only talking here about benefits. and that is a true milestone in the program. so -- okay, so then the next sort of reform issue has to do with what medicare should pay for. otherwise known as coverage policy. and coverage policy is something that i think the washington policy community doesn't like to talk about publicly because it's complicated. 9 the rest of this stuff is easy

by comparison. but medicare right now, its rule is that we're going to mostly kick coverage decisions -- coverage decision is a decision that medicare will pay for, a specific service for -- under particular circumstances related to the patient's condition and other things that matter. but it is not a decision about how much to pay. it is a decision whether to pay. and it is -- and let me hasten to emphasize that it is not a blanket, okay, we cover this, so everybody can get it. if i don't have a heart condition, i might really want a sti stent but unless i have a really good doctor, i probably won't get one. so coverage is local in medicare and medicare may be a national

policy in a sense but really where the rubber meets the road it's very much local. and it's very much determined by local practice. and local practice is very much determined by -- you tell me. we don't know. but it's very much determined by something. and so back in 2005, mark mcclellan was faced with a problem. so he created a concept called coverage with evidence development. and the whole idea was, well, let's temporarily -- temporarily and on a limited basis cover some treatment. i actually forget what it is. it might -- it was probably a -- it was a -- i think it was a heart -- >> something heart. >> something related to hearts. and i think it was related to devices as well but i don't remember exactly what it was. in any event there was a lot of pressure to cover this. there was a lot of concern in the professional literature about whether the treatment was

effective. and under what circumstances. and so the idea here was, well, we'll cover a narrowly defined group of patients for whom it is very likely to be valid treatment and then follow them, accumulate information and then decide whether we're really covering this or not. and the only problem is that once you've actually covered something, you can't -- you can't pull it away. and why can't you? well, you can't because it's not a scientific decision. you know, there's science, there's pseudo science and there's politics. so i'm x'ing off science. and i'm also -- but i'm not x'ing off pseudo science. because how do you know when you've got evidence? it's a darn good question. but you always know when you've got politics. so that raises some questions about comparative effectiveness and technology assessment and all of these ideas that are in the current law about how is medicare going to grapple with that, given that coverage is a political decision?

it's hard to know. okay. so the last incremental change or reform -- and this is definitely incremental. adding private plan choices. the reason it's incremental, throughout our entire history of the medicare program, we've added things. but we have tried to avoid affecting the things that were already there. so when we added -- and this is sort of the history. i won't go through it. but when we added private plans today medicare program under various provisions over the last 20 or 30 years, medicare was the rock. we didn't touch that. in that sense this was incremental. so none of these reforms addressed the underlying philosophy of the medicare program, which is everybody can have everything. so -- but that doesn't mean that

people weren't willing to stick their neck out. and you'll note some pictures here. we have bill thomas, who was more than willing to stick his neck out. and and john breaux, they were in charge of the national bipartisan commission on the future of medicare in 1999. and they proposed the idea of premium support. this is an idea of course -- the idea of having actual resource constrants recognized in the medicare program. we believe in every part of our lives that the world is finite but not medicare. so here was an idea that would begin to introduce the idea that you can't absolutely do everything for everyone at all times. the -- i think one of the most

interesting parts of this proposal from the bipartisan commission, which of course got the usual commission vote and it was -- >> less than a supermajority. >> exactly. i'll repeat that for the cameras in case they didn't hear that. a majority but less than a supermajority. this is the way government commissions seem to operate. i guarantee probably the same political result. but the -- it was recognized that the historical division between part a institutional services even part b outpatient services is completely and utterly ludicrous, that you real whether ly need a comprehensive plan although for most people it sort of is because most people sign up for part b. but to actually turn medicare into something that looked like modern insurance.

that was one of the innovations that i think the commission proposed in addition to premium support. this is an old idea but it's back again. alice revlon and paul ryan proposed it in the fall and it's still floating around out there. same idea. premium support. i'm going to focus here on the idea of looking at medigap posal which i think is an important part. their proposal is to try to reduce the inducing effects of m medigap coverage that causes people to have less awareness of cost and more willingness to get medical intervention. i don't want to call it

treatment. medical intervention that may not actually be worth anything medically. and -- but there's -- there may be money in it for the providers. and so the idea was to instead of saying that if you buy a medigap policy that right now covers absolutely everything -- there are certain medigap policies that cover virtually all cost-sharing. that by the way -- that particular form of medigap is the most popular form. that everyone including those that had previously that kind of coverage would be subject to a $500 deductible that they actually had to pay out-of-pocket and they would be subject to a requirement that they pay out of their own pockets $2700 before hitting the catastrophic cap. so this is an attempt to bring into people's awareness that at the point of service that

there's money going on here. i would emphasize that it's also an attempt at the point of service to get the attention of providers. and i think that's that idea. okay. so now where do we go from here? i think the road sign says it all. and i'm going to hit a couple of points. there's surreal strategic or philosophical questions that people have to ask and answer when it comes to medicare reform. it is true that the health reform didn't really reform medicare. it's more or less business as usual in the medicare program. so if we're really thinking about medicare reform, what is our strategy here? should it continue to be incremental or should there be a, sort of a full monte kind of

structural reform remembering the history that incremental reforms, whether you think they moved in the right direction or not tended to happen. structural reforms, big things, the question, the underlying principle of medicare, the underlying unrealistic principle of medicare, those haven't succeeded, so that's a question. then there's the age old question, how much control, how much competition? where do decisions get made? is the locus of decision making central or is it decentralized down to the doctor and patient? is what decisions should be centralized and decentralized? most of the rhetoric says let people decide, but what decisions should they be deciding? what information do they need to have? what's really feasible? then finally, are we going to live in the land of hope?

are we going to live in the land of reality? or are we going to live in the land of realistic hope? i think a viable medicare reform has to accept reality, but we can't give up on hope, even though of course we have been disappointed time after time. so, let's move on to the next one. okay. so health reform and, you know, barriers and opportunities to medicare reform. well, it actually did pave some of the way. because now it's actually possible to talk to anybody about health system issues except don't say it like that and they'll talk with you. where a couple years ago, if you raised anything about health insurance, they would think about their own coverage maybe, but you wouldn't get a conversation. one of the virtues of the last few years is that now it's not

just on the official public agenda. it's on people's minds and that really matters. the second positive thing is that health reform legislation recognized that medicare is pivotal. they didn't recognize it as fully as they should have, but they did say medicare should have an innovation center and it should try to figure it out for everybody else. again, you can dispute whether that's a smart strategy, but it did recognize that medicare has a role to play that is different from other entities in the system. on the other hand, it reinforced the same unrealistic expectations that we've had all along about health financing. it embraced the same failed cost containment strategies that have never worked in medicare and we're going to do even more of it, except of course we know that won't happen because of politics and of course it added to our overall fiscal problem in

this country, making it even more imperative to do something about the medicare program. so okay. incentives and information. they matter. the health reform talks about it a good bit. everybody talks about it a good bit. a point i would make about cost awareness is that the wrong combination means that people are basically going to run through their health care without really thinking to ask is this a good idea. and so supplements to medicare, i mentioned that. fee for service, the usual pressures there to do more rather than less. patient expectations are a big factor. if you expect the unrealistic, you're liable to get it in the system we have because it's a political system. but it works on both sides. on the supply side, you have the

same exact pressures, plus maybe the threat of malpractice, which means that there's little pressure for them to hold back under the current system and fee for service medicare. so we need better information, but we also need better incentives. if we don't change the incentives, it doesn't matter how much information we have. people will act in their own self interest. we need to recognize that and our reform needs to capitalize on that reality. what are the first few steps that you could do? obviously, i support eventually getting to the full monte reform. the question is how do you get there? so there are some obvious, i think, first things i would recommend at least. we absolutely do have to reform the medicare advantage program. the health reform legislation didn't reform it. it cut payments, but it didn't fundamentally change things.

and so -- i should add that the medicare payment advisory commission has consistently said that relative to traditional fee for service medicare, we're paying something like 12% more and we have for a long time. now, that may or may not be a problem. i don't have time to say anything about it. while walt may has a view on this. the real problem is that you've got two programs. you've got one that's sort of competitive, the medicare advantage program and you've got one that is totally uncompetitive, traditional medicare and you want competition in the whole program, not part of it. you want it in 100% of the medicare population, not 20%. so that's something that needs to be looked at. you need to take steps that the pral employees health benefits program took years ago. people need good information

about what their choices are. medicare does have these online sites, well, probably everybody in this room has helped their elderly relatives try to figure out what to do. we need to give consumers a bigger voice. i think the idea of giving people a savings vehicle and allowing them to make some of the decisions, some of the financial decisions themselves will help. in fact, i think it's hard medicine. it's very bitter tasting but it's the solution to sustainable growth rate problems. rather than continue to bubble up and give docs a one percent or half percent increase and continue to grow this imaginary debt that's never going to be paid off. why not give them a big cut? take that money, give it to beneficiaries. it's complicated, i can talk to you about it later, and also then let them charge whatever they want. we'll see where the prices end

up. i know. it's shocking, but it's possible. i go to the supermarket and i find that happens to me every day. so there we go. so can we do it this time? well, okay. we're going to wait two years, we all know that. nothing is going to happen for the next two years, but there's hope. we can embrace that spirit of youthful pessimism that we're all familiar with. what i mean by that, of course is, if you ask people, and in the medicare context, young is 65, but probably under 50, the vast majority of active workers think that social security is just not going to pay them a benefit. nobody ever asks about medicare because it's hard to ask that question, but you're going to get the same answer if you could ever figure out how to ask people that question. they really don't think they're going to get benefits. if you don't think you're you going to get benefits that means

that if somebody changes what you don't think you're going to get and you'll get something, well, that might be politically possible. now, you do have a bit of a problem, because people who aren't close to the medicare age, know they're going to get benefits. what do you do about that? obviously, the ryan plan, the bipartisan plan tried to deal with that. i think there's hope here. finally and clearly, circumstances will force bipartisanship because if you're in a boat in the ocean and there's a gigantic hole in the bottom, there's only two people, you and your alleged enemy and you're both going to die anyway, you're liable to figure out what to do. bipartisanship. i thought i was cynical. >> two drownings. >> what do we mean by bipartisanship. this is the kind of bipartisanship we've had.

this is an animal that doesn't move very fast. this is the kind of bipartisanship we're likely to have, and this is an animal that's going to strain itself, but actually even worse, it's probably going to be this bipartisanship. you notice it all has to do with animals. this is the kind of bipartisanship we need. we're going to get it because reality is going to intrude on our most dearly held elusions about what's possible. thanks. >> thank you, joe. with that optimistic note, we'll turn to our panel. we got -- let me say as joe sort of just 0 to simplify this thing, when you talk about medicare reform, you can talk about it in a technical way, which the policy wants to do or you can talk about it in politics. this panel is designed to talk about both of those today. we're going to take them in the order in which they are listed

here, starting with walt francis. i won't spend much time telling you about their background, but walt has been -- had a career in aspi and hhs, and has written the checkbooks guide to health plans for federal employees for over 30 years now. last year, wrote what i think was one of the best aei books we've ever put out. i really liked it, putting medicare consumers in charge, where he compares the fehbp and medicare. walt? >> thanks, bob. thank you. i have my watch on too. luckily there's a clock. two very quick comments on joe's presentation. one is he had that map showing where all the spending is.

if you had a map of where we catch medicare fraud, it would look identical. miami would be the reddest of all and new york and l.a. and houston right up there duking it out. okay. i don't think that's an accident. one of my reform proposals will touch on that. the other thing i think is interesting and i totally will defer on the politics of this, the budget director, jacob lew did say a couple days ago that the reason the administration hadn't put medicare and social security reform proposals in the budget is they figured it would be easier to cut back room deals with the congress because that way people would have staked out positions. i make no predictions th. at least one can can take solace from that. i won't go through the fiscal situation, but time really matters on this. if we can cut x billion from medicare tomorrow, that saves

those interest costs which pyramid over time compounding. so time really matters and we really are at the point where time matters, not to belabor it, but again, two-thirds of those medicare savings scored by the cbo in the health reform bill are these hospital cuts that will not occur. so we're just about to play another game like we play with sustainable -- it will take four or five years to play out, but just like sustainable growth rate, they will start being postponed just like the alternative minimum tax. they're not going to happen. health reform won't save money long term. it's going to cost a lot more and the alleged medicare savings are elouisry for the most part. i think there are ways to make medicare reforms that have some possibility of being politically feasible and i want to comment -- i want to give some of those examples, but before i

do so, i want to comment on some history here. i had the unfortunate experience, my first testimony before the congress of the united states was back in the late '80s, there was a senate aging committee hearing on the medicare catastrophic coverage proposal held by proponents of the most maximum benefits possible but adding prescription drug benefits. i had to testify as a career staffer, but it was christmas holidays, everybody said they were out of town against covering medicare beneficiaries for prescription drugs. that was a fairly traumatic experience, even though i was promised i wouldn't be assaulted in the witness stand. i'm actually a huge supporter of the prescription drug program. i think it was brilliant to put it in, because i think -- i credit the medicare modernization act, chairman thomas and his colleagues because it makes possible lots of other medicare reforms. joe alluded to this.

medicare is a terrible insurance program. think of an insurance program that's so bad that 90s% of the people who participate in it have to go out and buy some other insurance to cover its holes. that's just appalling. we have now achieved painlessly, unnoticed by the world, medicare catastrophic coverage in 1/4 the people in medicare because all medicare advantage plans now have partly by law and partly by recent cms regulation ironclad wonderful catastrophic coverage limits. not only has there not been a fuss about it, no one threw themselves on chairman thomas' chair, or some other chairman's car as happened -- that was in chicago. but, you know, it's happened painlessly. i think there's great hope for achieving things with relative

political acceptability. i'm not going to argue the tactics. maybe we will have to wait two years. there are lots of possibilities. i want to focus particularly on medigap, which is i think the big villain in the house, second only to the tax preference for health insurance, and i won't go into that, i assume i'm preaching to the choir for all economists, there's no reason to go through that. everyone knows those issues. medigap is a huge cost driver in the medicare program. when it turns out your second, third, fourth cat scan is free, when it turns your third or fourth specialist visit this week is free. when it turns out that if your artificial hip has platinum plating over the titanium, it's free, et cetera. i won't go through it. there's a massive and cbo scores proposals to reduce medigap coverage as saving more than they cost in some cases.

a very simple reform proposal. in december, the rump congress enacted by law a provision, i'm not sure if it was temporary or permanent, there may be no increase in any trikay co-payments because those tricare people pay a dollar or two for their drugs and the nasty department of defense wanted to raise it a couple bucks to get some cost consciousness into that program. tricare is like a third rail of reform. i have a simple tricare reform proposal that i can imagine the congress passing. it is this. we'll give the military retirees, we will pay their medicare part b premium for them, if they opt out of that wraparound program. just stick with original medicare or medicare advantage. their choice, their free choice. i guarantee you, because it's already happened cbo will score that as a multi billion dollar

saver. who's losing? who's opposing? i assume the retired officers association may not like that, because after all, they're like other advocacy groups, they get dues and membership and so on by fighting, just like public radio is going crazy on the airwaves over the house budget mark for pbs, but, you know, there are options there, but tricare and fhp are only a trunk of the medigap problem, why not a grant program to stakes. give them a small amount of money if they'll switch to retiree coverage that pays the part b coverage and doesn't wrap around. all right. i won't go through other possibilities. i think those illustrate that there are options that can save money, offer more improvement, offer choices that some people would welcome. one of the dirty little secrets

of medicare advantage which has capped its 25% grew quickly, the 25% enrollment share of medicare, that's a big number. it stayed there in the latest data i've seen despite in the cuts in the fifa service options. the people who enroll in medicare advantage programs are opts out of medigap. they're saving 15 hundred bucks in premiums. they're saving the program a grabbed or two in unnecessary spending per person because that's the magnitude of that. and this notion that the 14% overpayment you all talk about that, that 14% overpayment is buying people out of medigap coverage into medicare advantage programs where there's at least nom cal cost savings. there's not inconsequential evidence that there is a halo effect in terms of practitioner's habits when a lot of people have to pay cost sharing. joe alluded to that. there are things going on that are good things and we could accelerate them and improve

them. couple other quick ideas on another general point. medicare costs in round numbers $15,000 a person enrolled. it's the actuarial value, thinking of it as an insurance program, even though it isn't. i'm not going to endorse your silly points. i got to find something i disagree with. okay. the cost sharing right now in medicare for part b and for part d is, in round numbers, 15 hundred bucks. that's what a senior pays to be enrolled in those two programs. that's 10% of the 15 grand. who is paying the other 90%? the taxpayer. that's a held of a deal. the question is do we really want to allocate. i'm back to joe's chart, that incredible growth over time to be paid? do we think it's a prudent use

of social resources to say we're going to pay 90% of the freight for old folks' insurance costs. this then leads to a question, and i don't know if we're going to get to that from our missing panelist, but he wrote a -- james wrote an interesting piece that got press play a few weeks ago about comparing medicare and social security in terms of who's paying. social security, people who pay into the system for a lifetime actually get back a little less in actuarial value than what they paid in, depending on the assumptions you make. accepting the treasury bond rate, they get back less than they paid in. that's not true for medicare part a. people who pay in a lifetime medicare part a premium get back two to three times in benefits in retirement on average in actuarial terms what they paid in. people don't know that. i think if someone proposed to do something bad to part a, maybe that would be another

third rail of sorts, but there are options here. one of them is, for example, what if we taxed -- that 90%, that is tax free. another interesting fact about it, that is more than the average social security benefit. that is the average senior today is getting more in retirement benefits from medicare than he is for social security. i mean, do we really think that's the pattern that old folks want? these numbers are mind boggling. what if we tax the part a subsidy. what if we taxed half of it the way we did with social security some years back? i don't think that's a viable action in today's political scene. all my proposals aren't political win-wins, but, guess what? that tax would almost by definition not hit the lowest third or so of retirees because they don't have enough income to

pay taxes, to pay income taxes. so it has a marvelous income redistribution effect, as probably most of you do know, we're now testing medicare at the upper end at a fairly draconian way, a noninflation index higher part b premium on what is the current number and at least for the next five years or so is 85,000 a year agi. 1 sf,000 per couple. those are big numbers. a lot of places, including washington, d.c., they're going to hit a very large fraction of retirees. what if we converted the system to something a little more like medicare part d which i think was extremely well designed to protect people at the bottom. the premium is free and the co-insurance and co-pays go aaway and we get them out of medicaid all at once for the lower sort of 20%. we could do the same thing with

medicare's part a and b. right now, if you're poor, you go into medicaid. medicaid pays the premium and irpart of the medicaid problem. why not, with a little, it doesn't have to hurt people, you can do what rivlin and ryan do, you throw in health savings account, there i go again, joe. we'll make it worth their while and then we will raise premiums for the people who are above that bottom third. not that group up at 170 grand a year, but the group between whatever the number is, you know 30 grand a year and that number, make them pay more. why not? they're getting a huge, unearned freeby. that's a draconian proposal, but i think i want to contrast it to these sort of gdp growth plus 1% and other defined contribution formula, that's the rivlin-ryan formula. the problem with the formulas is that they are sort of -- they're

relying on compound arithmetic. if you project the government will not pay more for your medicare premium, okay, than gdp growth plus 1% over the next 50 years, it turns out by the end of the 50th year, you're paying the premium. that's the power of the compounding or close to the entire premium. that's a bit draconian. even though it's gradual and each cohort that joins they won't see all the pain, some of it will get passed, get back to joe's point the 50-year-olds that don't think the program will be around in their retirement, but the problem these formulas present. one of them is they don't adequately deal with the low income end, i don't mean just the poorest but the lower third or so. the other problem is they have the effect of every year eliminating your social security cost of living increase, because

do we really want every senior in america for an indefinite period of time to get no cost of living increase in the social security check? i don't think that's a scenario designed for prime time. i think we need to rethink some of these defined contribution formulas because i think they have some of that -- i don't want to call it a ponzi scheme, but they have that flavor of unrealty that the so-called hospital productivity formula in the affordable care act has and we don't want to fool ourselves that way. i'm strongly in favor of defined competition. i think competition will massively improve medicare's finances. i'm going to go back. we need to reform the tax system, we need to get rid of medigap. i think we can do it by buying people out. and we need to have competitive reforms. if you put the pressure on health plans to either reduce benefits, that's one option.

another option is to improve management so there's less waste, and a third option is to come up with reforms. with all due respect to my friends at cms and colleagues, i think the health plans still remain our best hope with coming up with innovative ways to meet consumer preferences while reducing unnecessary spending. i have one less suggestion. we should abolish the class act -- it hasn't taken effect yet, we can review it tomorrow. closing the medicare part d doughnut hole, hasn't taken effect yet, we can repeal it tomorrow. the doughnut hole turns out by accident to be one of the most powerful cost reducing and smart benefit design features designed by man. >> why do you say accidental? >> okay. i will defer to your point. >> get down to me quick. >> the prime motive was

sustained within the budget, the 400 billion or whatever the number was. that was certainly a major motive, but the fact is part d as currently designed says in effect your maintenance drugs, you get free. but, you know, at a certain point, you run out of free drugs. at that point the doughnut hole kicks in, you want to think hard about what drugs you are taking before you hit the doughnut hole effect. this has marvelous effects on planned decisions on how they manage their form larrys on consumer decisions on what they do. it's not an accident that the percentage of prescription drugs spent on generics has gone up in a three or four year period from i don't know whatever it was, you know, 45% to 60%. it's been a huge, massive shift in drug purchasing patterns and it was caused by that brilliant part d design that chairman thomas planned, but seriously, we don't need to close that doughnut hole. where does that get on the list

of the top ten federal government spending priorities as the country's fiscal situation tanks? i don't think it makes that list. final point and i'll stop, about fraud. checkbook, my publisher, had proposed to cms several years ago that cms release payment records for all physicians in the country. how much is medicare paying the doctor by procedure for all the procedures he does, because checkbook has very good reason, i won't go into the details to believe that volume and quality have a huge relationship, okay, and that they want to steer people to docs that do more volume, besides which the real plan was to then get outcome data. this allegedly violated the privacy act. and the privacy act, the freedom of information act was in conflict. this goes back to an ancient

court case. this went through a number of court hearings. into a court of appeals, two senile judges ruled releasing this data would have you absolutely no benefits in fraud reduction in medicare, which is one of checkbooks' arguments. i don't know how many of you read the "wall street journal" religiously, but if you read today's paper, you'll find a couple stories that pertain to everything i said. they are now suing to reopen what amounts to the checkbook case because the "wall street journal" got data that was supposedly deidentified were able to figure out which doctors were ripping off the medicare program and 214 of those doctors were led off in chains within the last few days, because they were able to identify how much they were being paid by medicare and the notion that this is not a fraud reducing -- you know, we are still paying dead docs, and your next-door neighbor might

notice you're being paid after you're dead. i don't know what we can save in fraud reduction, but there's probably a lot. modifying the privacy act to say that, what doctors get paid from medicare is not a matter so private and personal to them that we don't think the american public should see it strikes me as almost a no brainer. i know the ame doesn't like that idea, but it costs zero and the benefits are potentially in the billions. a billion here, a billion there, sooner or later, you're talking about real money. >> bill, by design, you're going to be last. our next -- >> by design, are we going to run out of time? >> our next speaker is dean rosen. he's now with mvc here in washington. >> next speaker is -- >> well, i was going by the way

they are listed here. you want murray to go next? okay. i'll do that then. okay. murray has been, i think most with the medicare payment advisory committee for many years but he's now a vice president of the kaiser foundation health plan. >> we're doing the age before beauty order i guess. thanks to aei and joe and bob for including me on this distinguished panel. when joe first brought this up, he said i'm going to lay out a bunch of crazy ideas to reform medicare and you're going to provide practical commentary on those. i know since joe never has a shortage of crazy ideas that would be an easy job. instead he changed his mind and said i'm going to lay out all the problems and you're going to have 15 minutes to provide practical solutions to them. i'm going to do a little bit of that trying to get to some practical solutions.

i want to echo a couple points that joe made and walking forward through them. one point i particularly want to emphasize is the urgency here. i mean, the fiscal challenges facing medicare aren't new. we've known since the program's inception that the baby boomers were going to start hitting medicare eligibility this year in january. we watched the program outpace gdp growth for as long as we can remember, which, by the way is the source of those wonderful returns on your medicare entitlement as we let it grow at 10% a year that looks better than what you can get on treasury bonds. it's been almost 15 years sinced balanced budget act and since that time, spending policy has mostly gone in the opposite direction. we've had givebacks, enactment of a brand new entitlement and not coming to grips with the problem has actually made it quite a bit more difficult. entitlement reform is easiest when you can do it in the future

when people discount the costs back to zero or think they have the time to prepare. my favorite example is the social security reforms of 1983. i found out at the age of 25 that my retirement age was going to be pushed to 66 years and six months. i had 40 years worth of warning. you really can't ask for a whole lot more than that. you have to wonder, had we been able to make some of the changes, for example, in the retirement age 15 years ago when they were being discussed, we would be much further ahead of the game than we are now. so let me try and walk through to some ideas. first off, figure out what's the problem that we're trying to solve. it's twofold. it's unsustainable spending driven by growth and volume and intensity of services and it's unacceptable quality as evidenced by almost any page chosen ativan dom out of the dartmouth atlas.

at the core of both of those is a fee for service payment system that largely rewards quantityty with respect to quality. no one is responsible for taking on costs and quality. we've made improvements over the year. as joe noted, we went from a world of cost based reimbursement and have been gradually introducing payment schedules and fee schedules over the years. it's hard to see fixing fee for service as the core to solving the problems. the improvements don't come on screen fast enough. it took almost two decades to go from medicare enactment to the first round of grgs. it took almost another 20 years to get to the second round. we don't have a lot of time to go at that particular pace. that's continuing to pay largely without regard to the quality of care that's provided. it's hard to lock in the savings

in going through fee schedules. all you need to think about is the balanced budget refinement act, whatever, i lost the acronym of the one that followed that, the annual overrides of the sgr. we know coming up with these complicated payment systems spawns a host of behafrl actions that make it harder to control. post acute care in the early 1990s is a response to dgrs. try to set the clock ticking. we don't deal very well in fee schedules with new tech knowledges, in terms of coverage or price. we're getting better quality, but the focus is primarily on doing interventions well, not asking should we have done the intervention in the first place, could we have avoided it through better prevention or better care management? so where do we need to go? one thing we need to do is make sure providers have both the tools and incentives to be doing the right thing.

we are making some progress there. tools include health information technology to make sure they have the information where and when it's needed, evidence about what works and what doesn't work and for whom, and i know there are praps differing view of the patient centered outcome institute in this room. i view that as an important step about getting information about health care in the hands of providers. and i think an important tool is influence, to collaborate with other providers. we talk about using health information technology to share information between physicians, specialists and hospitals but you have to have some kind of influence so other people accept the information that's being transmitted to them and act on it. incentives is pretty simple. it means not rewarding either over or under provision of care. the longer you think about fee schedules and prospective payment, the more you're drawn to increasing the size of the payment bundle. i'm not sure where that term

bundle first came up, but it's nothing new. we've talked about bundling complementary service for decades now, hospital stays with post acute care, things of that nature. but i would argue that the max number potential efficiency gains and arguably the quality gains move to full capitation paid to an organized care that avoid unnecessary services, manage quality and maybe think about keeping people well. combining capitation with the right incentives is the idea people talk about managed competition, premium support, it's create a marketplace in which plans and delivery systems compete, let the market reward high efficiency providers. the challenge is doing this alongside an existing fee for service payment system. we've seen this now for close to 15 years, the difficulties we've had with medicare plus choice,

medicare advantage. we need structural reform, but it will surely have to be done incrementally. the difficulty with medicare is that it has a long tail. when you apply constraints and say we don't want to disrupt care arrangements or insurance arrangements for an existing generation, you're going to have that existing generation for three decades. that kind of leaves us in a position of saying well, we're going to need to make peace with having this unmanaged fee for service system for a good segment of the population for quite awhile. it's not going to go away and how we lay along a reform system is a challenge. i'll offer just a couple of suggestions. again, they're sort of in the spirit of incrementalism. some of them are in progress. some of them not. both joe and walt alluded to strengthening the existing, i'll call them low kie of care

organizations. medicare advantage plans, this is the only part of medicare that is focused on people rather than conditions. we need to be thinking about how medicare is going to interface with exchanges assuming they go forward. do we want a world where we have people enrolled in plans for all of their working lives and ask at 65, now it's time for you to enter a fee for service, hunt on your own environment? we need to encourage the growth of organized care delivery models. this is the $10 billion question facing the innovation center at cms. how can we encourage greater organization of care. it won't be easy. the big systems have been around for decades. they're not going to be replicated any time soon. the challenge is physicians aren't going to magically organize themselves until they can see a payment system that will reward that organization. cms can't develop a payment system until it actually sees an entity out there to make the

payment to. this is exactly what cmmi, that's the innovation center, that's the challenge they've been tasked with figuring out. they have to do this in a step wise fashion of some sort. you would like to see it move quickly, but i think realistically it's going to take time to see what works and figure out the winners quickly and throw out the losers quickly. we need to focus on quality in fee for service the way we do in medicare advantage. we've really had a looking where the light is best philosophy for many years. you look at the entities responsible for a population and then you see how well they're doing at managing the care for that population. since there aren't such entities on the fee for service side, we just don't manage. this gets to walt's point about giving consumers better information. right now, they lack fundamental information about the quality of care they're getting in the fee for service side.

having said that we're going to be stuck with fee for service for a long time, i think we need to focus our energy on refining it to enlarging payment bundles and not silo settings. it's much more important to getting care providers to learn to coordinate care across episodes, to learn to work together than it is to get the incremental improvements in relative weights, i think. without having a specific proposal, i think we should think about leveraging medicare's program. the big pile concerns education. the fair question is are we training physicians to act in the care delivery system in the future or are we training them to practice in the unmanaged system that we have today. finally, we need to start thinking now about how to transition from a fee for service dominated world. what does it mean to have full competition between plans and

systems and fee for service? how will we determine premium contributions? would cms announce a premium that it would then be held to? how do we adjust premiums between plans and traditional medicare? the world of risk adjustment and thinking through contributions is all premised on having a fee for service system that holds down as an anchor and everything rotates around that. if it's in play, you have to start thinking about what your angering point is going to be. there's a huge question about whether it's possible to have fair competition between a regulator and it's regulates? you are a lawyer. you would know this word. we'll go with regulates for the moment. we talk about having competition. at issue is how do you get that competition and that level playing field? a couple thoughts and i'll stop there. >> thank you, murray. we'll go to you, dean.

dean had a career both on the hill in both the house and senate side. he's now with mvc here in washington, but most recently, he was the chief health adviser to senate majority leader bill frisk. >> thank you. i was thinking on the way over that the only thing more daunting that following bill thomas is preceding bill thomas. a lot of other people in this room who know a lot more about how to reform medicare than me, bill gratson and others included who spent their life toiling at it. i'm going to try to keep this simple. for me, i've kind of spent my career in congress working on legislation that has, i think made incremental improvements, in a lot of cases taken incremental steps backwards from progress. so as i think about it, in

public service, i have kind of been a devout radical incrementalist. think back to the balanced budget act, and the health insurance portability ability, even the medicare modernization act with prescription drugs, there were a lot of things that were kind of planting seeds in that legislation, along prescription drugs, this was the first time hospital information was out there being measured. i had faith, if you seeded those things, over time, smart people would figure it out in the private sector if they were given the tools. i re-read last night the congressional budget office economic outlook for fiscal years 2011-2021, hoping it would put me to sleep. it actually got me even more riled up. the fact is i've come to the conclusion that for reasons that i think walt and murray and joe have all stated, that we're in a

situation where we just now need to act in a more bold way than we have in the past. i think that all the incemental ideas about, you know, whether you move to a broader payment bundle are the right way to go if you're going to try to continue what we have been doing which is grafting on to the existing 1960s fee for service system, a path forward to incrementally improve the program, but when you look at the numbers, we have, you know, $1.5 trillion deficit that at 9.8% of gdp is higher than it's been since 1945. you look at the fact that the combined state debt held is 175 billion through 2013, it compels i think bolder action. i think murray asked the right question. which is what is the goal? the goal in part is to improve quality, have a better system, one that mimics what we know

works better around the principles that have been discussed. now we've got an impetus, i think, even though i'm supposed to play par of the role of the political prag mattist, i think there's a huge chunk of american people that are ready for bolder change than the changes that i have been part of as a staff person over the last 15 or 20 years. that may be a false premise, and i invite pushback on that, but as i said, as a devout, radical incrementalist, i'm ready to be bolder. some of you may have noticed that yesterday was the beginning of baseball season, pitchers and catchers reported, so i always am reminded of the great baseball philosopher, yogi berra who said when you come to the fork in the road, you've got to take it. i think we have to take it. the good and bad news i think is

there really are not many options out there. joe alluded to this earlier. the work that chairman thomas did and senator breaux are mimicked in ryan, rivlin and some of the other proposals. we'll talk about the elements in a moment. the alternatives to a program that looks more like that, more competitive, that's more of a defined contribution as opposed to a defined benefit is to ratchet down on provider payments or increase taxes. in some cases, along with it, continue to promise people that you're going to do that by swinging the benefit pot. we've tried that. albert einstein said the definition of insanity is doing the same thing over and over again. that compels me to believe that the debt situation, that the situation we face in terms of the lack in quality and all the

incremental improvements that we've tried to sort of weld on to this 1965 battle ship over the last couple of years have not really gotten us to where we want to go. let me just give a couple of examples of that and then i'll try to lay out my few simplistic practical proposals. if you look at it, we now have this debate over the accountable care organizations which, if you're trying to, i guess, make money, there's a million conferences about what an aco is going to be and how you can be successful. there's broad language in the affordable care act. we're yet to see regulations defining what that really is. i remember and i'm sure chairman thomas does, back to, in the 1997 balanced budget act, provider sponsored organizations. i think there may have been one and that went away. this idea of can we mimic in the fee for service program either what folks like kaiser do or what folks like mayo do or cleveland clinic or others

through government regulation, i don't have much faith that we're going to get that right the next time. what was the fundamental truth about that was that it was a reform, i think, just like aco, where we're trying to organize better and graft on to the existing system. you look at competitive bidding, the risk system, the challenge of competition. that was the goal and the motivating thought of premium support is for the first time, you would move to a level playing field where you would have real competition between the entire -- among the entire program. so when you contrast that, you know, this again may be a bit of revisionist history, i worked as a staff person on the bill that chairman thomas and others wrote. when you look at that, the one example that worked pretty well was part d. i think you can talk about a lot of the brilliant design features of it. i think it was. i'll conclude with that.

i think the one central difference for me of part d is it's one of the competitive programs we've had that hasn't been forced to compete in some ways with the fee for service program. it was entirely privately delivered. so what you really have is you have, you know, mapdps, medicare prescription drug programs which are integrated competing withstand alone pdps but they're privately delivered. that is in contrast to a system where they have to be price controlled and compete with a government provided program. we'll see with the affordable care act, what happens in the exchanges when there is a government plan that maybe competes aalongside the private sector, but i think again, when you take away all the complexity and boil it down simply, for me the central feature of why that program worked is because it didn't have to compete. it was the one true -- it was

the one true reform in the last couple of years that came in under budget and despite a lot of political heat, has turned out to be wildly popular. i will say as a caveat, you can criticize the benefit for one thing. it was not paid for and added to the deficit. that's not a design feature. as a design, it was well designed. let me just conclude, having said that, with a couple of key points because again, i'm at the point where there's not a lot new under the sun. the smart people for a long time have told us the direction to go. i don't think that the alternatives are that attractive and i do think that, kind of picking up on murray's point, if people under age 50, 45, 40, 35, i would like to have a debate about where you start that as opposed to where you're going. if people are given enough time to adjust, they will react. and the private sector will create products that will help

people save, just like we do when we know social security isn't going to fund our retirement. number one, one way to think about this, if you look at part d as a five year demonstration program that has been pretty successful and you maybe look at some of the authority that the center for medicare and medicaid, expand them nationwide, one way to think about this may be that you can do that or you can enact a law. what are the central features. adjust features and other costs by people's ability to pay. you increase, you're going to have to increase eligibility age as part of cost cutting. that's not a design feature. move from a defined payment to more of a defined contribution and a bidding program that's based on competition with more support for low income. we have a doughnut hole because we have support for people at the incremental and true catastrophic coverage but people who are lower income and modest income don't have to pay through the doughnut hole.

you have real competition, private plans competing, transparency and all of the elements we've talked about. i think rather than try to graft something else on to the administered pricing program, in hope that we can survive and that catches up and we deal with the reality of the huge budget that is facing us, i guess i would like to say let's start with a more radical proposal now and give the american -- level with the american people and give the younger generation, however you start this, time to adjust. i'll conclude there. thanks. >> thank you, dean. we'll go to gene steuerle. gene is now back with the institute fellow at the urban institute, but he's been with the treasury department and a number of advisory committees and even at one time, was here at aei for awhile. more importantly, i think the firs